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Workplace Relations

Framework

Productivity Commission
Draft Report
Overview
August 2015

This is a draft report


prepared for further public
consultation and input.
The Commission will finalise
its report after these processes
have taken place.

Commonwealth of Australia 2015

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This work should be attributed as follows, Source: Productivity Commission, Workplace Relations
Framework, Draft Report.
If you have adapted, modified or transformed this work in anyway, please use the following, Source: based
on Productivity Commission data, Workplace Relations Framework, Draft Report.

An appropriate reference for this publication is:


Productivity Commission 2015, Workplace Relations Framework, Draft Report, Canberra

Publications enquiries
Media and Publications, phone: (03) 9653 2244 or email: maps@pc.gov.au

The Productivity Commission


The Productivity Commission is the Australian Governments independent research and
advisory body on a range of economic, social and environmental issues affecting the welfare of
Australians. Its role, expressed most simply, is to help governments make better policies, in the
long term interest of the Australian community.
The Commissions independence is underpinned by an Act of Parliament. Its processes and
outputs are open to public scrutiny and are driven by concern for the wellbeing of the
community as a whole.
Further information on the Productivity Commission can be obtained from the Commissions
website (www.pc.gov.au).

Opportunity for further comment

You are invited to examine this draft and comment on it by written submission to the
Productivity Commission, preferably in electronic format, by 18 September 2015. Further
information on how to provide a submission is included on the inquiry website
http://www.pc.gov.au/inquiries/current/workplace-relations.
The final report will be prepared after further submissions have been received and public
hearings have been held, and will be forwarded to the Australian Government by the end of
November 2015.

Public hearing dates and venues


Location

Date

Venue

Bendigo, VIC

Friday 4 September 2015

TBC

Hobart, TAS

Monday 7 September 2015

Melbourne, VIC

Tuesday 8 September 2015

Canberra, ACT

Friday 11 September 2015

Perth, WA

Monday 14 September 2015

Adelaide, SA

Tuesday 15 September 2015

Sydney, NSW

Thursday 17 September 2015

The Old Woolstore


1 Macquarie Street
Rattigan Room
Productivity Commission
Level 12, 530 Collins Street
Hearing Room
Productivity Commission
Level 2, 15 Moore Street
Hotel Mercure Perth
10 Irwin Street
Stamford Plaza Adelaide
150 North Terrace
The Grace Hotel
77 York Street

Ipswich, QLD

Monday 21 September 2015

TBC

Commissioners
For the purposes of this inquiry and draft report, in accordance with section 40 of the
Productivity Commission Act 1998 the powers of the Productivity Commission have been
exercised by:
Peter Harris

Presiding Commissioner

Patricia Scott

Commissioner
OPPORTUNITY FOR FURTHER COMMENT
DRAFT REPORT

iii

Terms of reference

WORKPLACE RELATIONS FRAMEWORK


Productivity Commission Act 1998
I, Joseph Benedict Hockey, Treasurer, pursuant to Parts 2 and 3 of the Productivity
Commission Act 1998, hereby request that the Productivity Commission undertake an
inquiry into the workplace relations framework.
Background
The Australian Government believes that it is fundamentally important to make sure that
the Fair Work laws work for everyone.
Workplaces are important to our economy and society. Higher living standards, better pay
and more jobs all depend on having fair, productive, and effective workplaces. The
prosperity of tomorrow is driven by what happens in our workplaces today and this is why
it is in our national interest to make sure that the Fair Work laws are balanced and
effective.
The Australian Governments objectives in commissioning this Inquiry are to examine the
current operation of the Fair Work Laws and identify future options to improve the laws
bearing in mind the need to ensure workers are protected and the need for business to be
able to grow, prosper and employ.
Scope of the Inquiry
The Productivity Commission will assess the performance of the workplace relations
framework, including the Fair Work Act 2009, focussing on key social and economic
indicators important to the wellbeing, productivity and competitiveness of Australia and its
people. A key consideration will be the capacity for the workplace relations framework to
adapt over the longer term to issues arising due to structural adjustments and changes in
the global economy.
In particular, the review will assess the impact of the workplace relations framework on
matters including:

unemployment, underemployment and job creation

fair and equitable pay and conditions for employees, including the maintenance of a
relevant safety net

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small businesses

productivity, competitiveness and business investment

the ability of business and the labour market to respond appropriately to changing
economic conditions

patterns of engagement in the labour market

the ability for employers to flexibly manage and engage with their employees

barriers to bargaining

red tape and the compliance burden for employers

industrial conflict and days lost due to industrial action

appropriate scope for independent contracting.

In addition to assessing the overall impact of the workplace relations framework on these
matters, the review should consider the Acts performance against its stated aims and
objects, and the impact on jobs, incomes and the economy. The review should examine the
impact of the framework according to business size, region, and industry sector. It should
also examine the experience of countries in the Organisation for Economic Co-operation
and Development.
The workplace relations framework encompasses the Fair Work Act 2009, including the
institutions and instruments that operate under the Act; and the Independent Contractors
Act 2006.
The review will make recommendations about how the laws can be improved to maximise
outcomes for Australian employers, employees and the economy, bearing in mind the need
to ensure workers are protected, the need for business to be able to grow, prosper and
employ, and the need to reduce unnecessary and excessive regulation.
The Productivity Commission will identify and quantify, as far as possible, the full costs
and benefits of its recommendations.
An overarching principle for any recommendations should be the need to ensure a
framework to serve the country in the long term, given the level of legislative change in
this area in recent years.
In conducting the review, the Productivity Commission will draw on the full spectrum of
evidence sources including, but not limited to:

Australian Bureau of Statistics data and publications

data sources maintained by other relevant Government bodies, including but not limited
to the Department of Employment, Fair Work Commission and Fair Work Ombudsman

employers or their representatives

employees or their representatives


TERMS OF REFERENCE
DRAFT REPORT

academia

special interest groups.

The review should also identify gaps in the evidence base where further collection may
assist in the analysis of the overall performance and impact of the system.
Process
The Commission is to undertake an appropriate public consultation process including
holding hearings, inviting public submissions and releasing a draft report to the public.
The final report should be provided to the Government in November 2015.

J. B. HOCKEY
Treasurer
[Received 19 December 2014]

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Contents

Opportunity for further comment

iii

Terms of reference

iv

Overview

Australias recent labour market performance does not


suggest a dysfunctional system

Institutional reform

10

The safety net

13

Protecting employees

27

Enterprise bargaining

31

Individual arrangements

35

Industrial disputes and right of entry

39

Draft recommendations, findings and information requests

45

CONTENTS
DRAFT REPORT

vii

OVERVIEW

Key points

A workplace relations (WR) framework must recognise two features of labour markets.
Labour is not just an ordinary input. There are ethical and community norms about the way
in which a country treats its employees.
Without regulation, employees are likely to have much less bargaining power than
employers, with adverse outcomes for their wages and conditions.

The challenge for a WR framework is to develop a system that provides balanced bargaining
power between the parties, that encourages employment, and that enhances economic
efficiency. It is easy to over or under regulate.

Set against that framework, Australias WR system is not dysfunctional it needs repair not
replacement.

Toxic relationships between employers and employees can sometimes surface due to poor
relationship management rather than flaws in the WR framework.

Contrary to perceptions, Australias labour market performance and flexibility is relatively


good by global standards, and many of the concerns that pervaded historical arrangements
have now abated. Strike activity is low, wages are responsive to economic downturns and
there are multiple forms of employment arrangements that offer employees and employers
flexible options for working.

Nevertheless, several major deficiencies need addressing.

While the Fair Work Commission (FWC) undertakes many of its functions well, the legalistic
approach it adopts for award determination gives too much weight to history, precedent and
judgments on the merits of cases put to it by partisan lobbyists. A preferred approach to
award determination would give greatest weight to a clear analytical framework supported by
evidence collected by the FWC itself.

There is also concern that the appointment process for FWC members can lead to
inconsistencies in some of its decisions, a problem that a new fit for purpose governance
model involving all Australian jurisdictions could resolve.

The Fair Work Act 2009 (Cth) and sometimes the FWC can give too much weight to procedure
and too little to substance, leading to compliance costs and, in some cases, poor outcomes
some minor procedural defects in enterprise bargaining can require an employer to
recommence bargaining
an employee may engage in serious misconduct but may receive considerable
compensation under unfair dismissal provisions due to procedural lapses by an employer.

These problems could be easily remedied without removing employee protections.

Minimum wages are justified, and the view that existing levels are highly prejudicial to
employment is not well founded. However, significant minimum wage increases pose a risk
for employment, especially when set against a weakening labour market. Minimum wages are
also often paid to higher-income households.

Complementary policies that provide in-work benefits such as wage subsidies or an earned
income tax credit might support higher incomes for lower paid employees, while not damaging
employment. However, there are challenges in developing effective policies of this kind.
(continued next page)

OVERVIEW
DRAFT REPORT

Key points (continued)

Awards are an Australian idiosyncrasy with some undesirable inconsistencies and rigidities,
but they are an important safety net and a useful benchmark for many employers. The FWC
should address specified troublesome hotspots on a thematic basis, rather than completely
replace them.

Penalty rates have a legitimate role in compensating employees for working long hours or at
unsociable times. They should be maintained. However, Sunday penalty rates for cafes,
hospitality, entertainment, restaurants and retailing should be aligned with Saturday rates.

Enterprise bargaining generally works well, although it is often ill-suited to smaller


enterprises. However,
the better off overall test used to assess whether an agreement leaves employees better
off compared with the award can sometimes be applied mechanically, losing some
benefits of flexibility for employees and employers. Switching to a no-disadvantage test
with guidelines about the use of the test would encourage win-win options. The same test
should be used for individual arrangements
bargaining arrangements for greenfields agreements pose risks for large capital-intensive
projects with urgent timelines. A limited menu of bargaining options would address the
worst deficiencies, while taking account of the different nature of greenfields projects.

Individual flexibility arrangements have many possible advantages, but their take up is
relatively low. In part, this reflects ignorance of their existence. But there are perceptions
(sometimes not well based) of defects that also constrain their use. These could be resolved,
including by providing information on their use, extending the termination period of the
arrangements and by moving to the no-disadvantage test.

There is scope for a new form of agreement the enterprise contract to fill the gap
between enterprise agreements and individual arrangements. This would offer many of the
advantages of enterprise agreements, without the complexities, making them particularly
suitable for smaller businesses. Any risks to employees would be assuaged through a
comprehensive set of protections, including the right to revert to the award.

Industrial action in Australia is at low levels. Only some minor tweaks are required:
processes for secret ballots can be overly complex
aborted strikes and brief stoppages are sometimes ingeniously used as bargaining
leverage by unions, but a few simple remedies can address this without affecting the
legitimate use of industrial action
there may be grounds to give employers more graduated options for retaliatory industrial
action other than locking out its workforce.

It seems to be too easy under the current test for an employer to escape prosecution for
sham contracting. Recalibrating the test may be justified.

Migrant workers are more vulnerable to exploitation than are other employees, and this is
especially true for illegally working migrants. This may require more proportional penalties to
deter exploitation and further resourcing of the Fair Work Ombudsman to detect it.

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Overview

Despite sometimes significant problems and an assortment of peculiarities,


Australias workplace relations system is not systemically dysfunctional. Many
features work well or at least well enough given the requirement in any
system for compromises between the sometimes conflicting goals of the parties
involved.
The system reflects that labour differs from other inputs, and that a sound
workplace relations system must give primacy to the wellbeing of employees (and
would-be employees), and take account of community norms about the fair
treatment of people. While there are hot spots that justifiably attract major
concerns, the day-to-day life of most employees and employers is harmonious and
productive, with a reasonable balance between the relative powers of the parties.
The key message of this inquiry is that repair, not replacement, should be the
policy imperative. The adapted system needs to give primacy to substance over
procedure, rebalance some aspects of the system that have favoured some parties
over others, and revitalise its principal regulator. An improved workplace
framework must involve decision making that is not unnecessarily beholden to
precedent or to dated labour market structures. It must rely much more on
evidence as a basis for its future direction, including information on the relevance
of new developments in labour relations. The frameworks broader menu of
bargaining arrangements and the more coherent wage setting capacity of its key
institution will underpin greater responsiveness to emerging social and economic
developments (for example greater demand for flexible work arrangements with
shared child care, an even greater shift to the 24/7 economy, and further
automation of services).
This broad strategy will improve productivity, increase employment, and aid
flexibility for employees and employers, without destabilising the system.
The workplace relations (WR) framework comprises a complex array of labour laws,
regulations and institutions. Along with market forces, accepted practices, cultural norms
and the common law, these shape peoples behaviour, the nature of their workplaces and
their working lives.
The national system directly affects millions of Australian workers. In mid-2015, around
11.8 million people worked in more than 2 million workplaces around Australia. Of these
people, around 70 per cent were covered directly by federal workplace laws (figure 1), and
others are indirectly affected. For instance, an owner-manager of a small firm must comply
OVERVIEW
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with WR laws, while the choices of people to become self-employed are strongly
influenced by the alternative wages and conditions that they could receive by being an
employee. There are also more than 700 000 unemployed whose job prospects are affected
by the system. Even employees outside the national system (some state public servants and
some employees captured by the separate Western Australian system) find that their
arrangements are shaped by the national arrangements. Further, to the extent that the WR
system embodies community expectations about fairness or influences national prosperity
and productivity, all Australians have a stake in its effectiveness.
The premise of any WR system is that, absent specific workplace legislation and oversight,
employees would particularly suffer from unequal bargaining power. Most stakeholders
recognised this. Of course, bargaining power is not always in the hands of employers.
Aspects of the Fair Work Act 2009 (Cth) (the Fair Work Act) and the Competition and
Consumer Act 2010 (Cth) seek to address excessive use of bargaining power by unions.
Once a system is in place to regulate bargaining power, there will always be questions
about the efficiency and effectiveness of the system, and whether the system has over or
under shot in remedying any prior imbalances.

Figure 1

Employment arrangements, 2015

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In trying to produce a balanced system, WR legislation, institutions and regulation are now
highly elaborate and broad ranging (figure 2). However, market forces play a larger role in
most wage outcomes and, in the longer term, have a strong impact on conditions.

Figure 2

The main elements of the current workplace relations


arrangements

For example, wage growth is strongly influenced by the business cycle, long-run
productivity and sectoral changes.
OVERVIEW
DRAFT REPORT

The regulatory arrangements have grown from a limited Commonwealth role in dispute
settlement one hundred years ago to a position today where the Commonwealth through its
statutory bodies regulates the bulk of industrial awards, resets minimum wages, mediates
disputes, provides information, registers agreements, checks compliance with the law and
adjudicates on key matters of WR law.
It is a busy institutional space. Three bodies, the FWC, the Fair Work Ombudsman and
Fair Work Building and Construction, are the key national regulators, while the Federal
Court is the principal judicial body. Various other institutions state and territory work
safety regulators, anti-discrimination bodies and the Australian Competition and Consumer
Commission also have specialist roles in parts of the WR system, for example in
relation to regulation of secondary boycotts.
In its roughly 900 pages, the Fair Work Act covers most aspects of the way in which
parties should deal with each other in their employment relations, and in setting a variety
of minimum standards. An extensive body of common law sits beside the statutory
framework. Reflecting the regulatory underpinning of the system, wages and conditions for
most national employees must be at, or above, the safety net of those set in 122 awards.
Notwithstanding complaints from some employers, there is considerable scope for
flexibility through independent contracting and employers capacity to negotiate individual
and firm-specific outcomes. In fact, award wages are less important now than at any other
time in the last 100 years. Nevertheless, the clunkiness of the system, concerns about the
complexity of forming enterprise agreements, inconsistencies and lack of clarity in awards,
barriers to forming individual flexibility arrangements, and the unpredictability of FWC
decisions on a range of matters deters firms from using some of the available avenues.
The Fair Work Act cites objectives that are diverse and as is often the case with such
diversity inevitably sometimes in conflict. The Fair Work Act is intended to deliver
outcomes that are fair, flexible, co-operative, productive, relevant, enforceable,
non-discriminatory, accessible, simple and clear. The legislation is complex and there are
meaty pickings for lawyers and workplace practitioners on all sides.
People are confused by the system, and some parties that should have a bigger voice in it
consumers, the unemployed and underemployed have marginal influence. There are
unquestionable inefficiencies, remnant unfairness, some mischief and absurd
anachronisms.
In this messy context, there is an understandable tendency to imagine that there must be a
much neater and coherent system, and that it would be desirable to start with a clean slate.
The view from the bulk of stakeholders and from this inquirys analysis is that such a view
would be misplaced. The system needs renovation, not a knockdown and rebuild.
Moreover, some of the Productivity Commissions recommendations in this draft report
are not new. The 2012 review of the Fair Work Act identified a range of worthwhile
reforms, some of which were not acted on at the time. But this inquiry does not simply
8

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traverse the territory of the previous review. The terms of reference require the
Productivity Commission to cover all those aspects of workplace relations that impinge
upon the ability of the system as a whole to adapt to longer-term structural shifts and
changes in the global economy.

Australias recent labour market performance does


not suggest a dysfunctional system

There are several myths about Australian labour markets that suggest that some of the key
concerns voiced by stakeholders on all sides are of dubious validity.
The prevalence of independent contracting has remained an important source of labour and
has been stable over the last decade.
Security of work appears to have changed relatively little in recent years. While the
proportion of casual jobs increased throughout the 1990s, this trend tapered off during the
2000s, particularly for women. Most people working in casual jobs move into permanent
jobs in later stages of their lives.
The labour market has accommodated well to large shifts in labour supply. Many more
women, more mature age workers and large numbers of skilled migrants have entered the
labour market. For example, the current level of skilled migrant intake is almost three
times higher than levels of the late 1990s. Most people who experience unemployment do
not do so for long. The shift away from making solid things to services has largely been
achieved without growing unemployment.
Weekend work is now common. The traditional Monday to Friday week is not dead, but
nor is it as predominant as in the past. Some 4 million employed people more than one
in three in the workforce work at least a Saturday or Sunday each week.
There are several indicators that the labour market has become more flexible, most notably
through a greater tendency to adjust hours rather than employment during demand
downturns, and the unresponsiveness of inflation to strong labour demand in leading
sectors. Economywide wage breakouts and associated stagnation the horror of the
1970s seem as dated as floppy disks. The resources boom led to strong growth in
mining wages, but not wages in general (figure 3). There is little evidence that labour
market mismatch has changed.
Surmise aside, there is little robust evidence that the different variants of WR systems over
the last 20 years have had detectable effects on measured economywide productivity. This
does not mean there are no effects, but simply that they apply at the enterprise and industry
level and are hard to identify in the aggregate economy given the myriad of other factors
shaping productivity.

OVERVIEW
DRAFT REPORT

However, there are some potentially concerning trends. In particular, youth unemployment is
rising, and by more than the growth in the unemployment rates of prime-aged people in the
labour market. Underemployment and long-term unemployment has also risen in recent years.
The end of wage contagion

Figure 3

Growth in the mining wage index compared with all industries


7

Mining
Annual growth rate (%)

6
5
4

All industries

3
2

1
Sep-1998

Sep-2001

Sep-2004

Sep-2007

Sep-2010

Sep-2013

Institutional reform

The performance of Australias workplace relations system relies strongly on the


capabilities and functioning of its main institutions. Discretion and judgment exercised by
competent and independent bodies are as critical as statute in an efficient and fair system.
The Fair Work Ombudsman is performing well, adopting targeted and innovative approaches
to compliance and information provision. It is highly regarded by many stakeholders. It is
essential to the credibility of any future systemic reforms that it receive sufficient resourcing as
new hot spots emerge (such as for emerging problems for 417 visa holders).
Likewise, the FWC has adopted efficient conciliation processes in unfair dismissal cases,
and has introduced a variety of innovations more generally. Its approach to the current
Modern Award Review acknowledges some of the glaring problems that still beset awards
(but do not go far enough). While there are concerns about the FWCs use of evidence (see
below), its expert panel on annual wage reviews does consider some empirical evidence in
its annual wage case determinations, particularly information on current labour market and
macroeconomic conditions.

10

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That said, some perceive the FWC in less positive terms, although in part this is the
inevitable accompaniment to the diverse, complex, and controversial nature of its
functions. However, there are three flaws in the structure and operation of the FWC.

The heavy weight of history


History and precedent play too big a role in some of the FWCs key economic and social
functions, particularly award determinations. In effect, the past is assumed innocent unless
found guilty, embedding old, but outdated, features of the WR system. One award still
provides employees with the option of an X-ray every six months if they work in a
tuberculosis home or hospital (the last of which closed in 1981). The survival of this
provision is benign, but is nevertheless telling about the weight of history.
A distinguished former high court judge has noted the power of the past in industrial
relations:
The past is another country. It is a place safer for people like me to dwell than in the industrial
present or the future. Judges live with the past, surrounded by its stories in their books, from
which they seek to derive logical analogies and the great streams of principle that will promote
consistency and predictability in decision-making. (Justice Kirby 2004)

This backwards-looking perspective is a necessary feature of the legal judgments of the


FWC as a tribunal. Past decisions assist in interpreting the law. Although not formally
bound by the rules of evidence used in courts, the FWCs practices also tend to give
greatest weight to the evidence put by the contesting parties, rather than on better evidence
that it has actively sought. These approaches have carried over to the FWCs wage
determination functions, which require a different mindset. Wage determination is
inherently an economic, statistical and social matter that needs to give most weight to new
evidence on the consequences of regulatory choices in contemporary society. As new
evidence or analytical approaches emerge, its economic decisions should be re-framed.
The implication is that the FWC should develop clearer analytical frameworks and
proactively undertake its own data collection and systematic high-quality empirical
research as the key basis for its award decisions and wage adjustments. (While the FWC
does initiate some research, much of it is of limited specific relevance to its actual
decisions.) The FWC should not just impartially hear evidence from parties, but also
engage with parties that do not usually make submissions, such as those representing
consumers and the jobless.

The virtue of consistency


While the Fair Work Act sometimes compels members of the FWC to give too much
weight to procedure over substance (as discussed later), the attitudes of individual
members also play a role. Guidelines issued by the FWC about statutory interpretation and
performance assessment of members should curtail this.
OVERVIEW
DRAFT REPORT

11

Governance
The governance of the FWC needs reform. Some of the primary causes of inconsistencies
in its determinations reflect the choices made by successive governments, particularly the
emphasis on appointing persons with perspectives oriented more to one side or the other of
industrial relations debates. FWC members will accordingly reach different judgments
even in instances where the circumstances are similar. This is not so much the result of
bias, but rather a reflection of the fact that they come with different mindsets, are obliged
to weigh up the often competing objectives laid down by the Fair Work Act, and must
deliberate on matters that are inherently subjective. As an illustration, there is good
statistical evidence that the findings in unfair dismissal cases have allowed some
inconsistencies to creep into judgments. Given their different perspectives, it is not
surprising that members with an employer association background are more likely to find
in favour of an employer compared with other members, while on average those with a
union background produce outcomes in the opposite direction.
Better governance practices are essential for a body with determinative powers on
economically important matters operating in a politically sensitive and highly technical
area. Two main reforms are required.
First, the FWC should have two distinct divisions. A Minimum Standards Division would
have responsibility for wage determination, and would undertake the annual wage review
and make award determinations. Its members should primarily have expertise in
economics, social science and commerce, not the law. A Tribunal Division would be
responsible for the quasi-judicial functions of the FWC, such as decisions relating to unfair
dismissals, adverse actions, approval of agreements, rights of entry and industrial disputes.
Its members should have broad experience and be drawn from a range of professions,
including the law, commercial dispute resolution, ombudsmans offices and economics.
Second, the processes for appointing members of the FWC also require reform. The
Australian, state and territory governments should create an expert appointments panel,
which would provide a merit-based shortlist of candidates for the two divisions. The
relevant Australian Government minister would then choose members from the shortlist
for a fixed tenure (with the potential for renewal). Both the panel and the relevant minister
would need to be satisfied that the person would be widely seen as having an unbiased and
credible framework for reaching conclusions and determinations.
These changes would align governance within the FWC more closely with that observed in
many other contemporary decision-making bodies.
Structural changes of this nature will take some time, but action on some fronts is needed,
and can be taken, now. The FWC already has the capacity to appoint more experts as
advisors to its members and to take an activist and evidence-based approach to an
assessment of awards. A change in mindset requires no legislation, and a move in this
direction under the strategic guidance of the President would be a major step.

12

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The safety net

The safety net comprises three main instruments that set floors to wages and conditions for
employees: the national minimum wage, the National Employment Standards and awards
(including penalty rates).

Minimum wages
Minimum wages in Australia are set by an FWC Expert Panel, taking into account changes
in economic conditions and representations, especially from the government, business and
union stakeholders. It generally awards modest rises in minimum wages, and its
predecessors have occasionally suspended increases during downturns. A commonly used
measure of the comparative level of the minimum wage is its ratio to the median wage rate,
which also enables meaningful comparisons with other countries. While the
minimum-to-median wage ratio remains high in Australia compared with most other
countries (France and New Zealand being the notable exceptions), it has declined over the
past decade. Indeed, no other OECD country has shown such a strong trend decline
(figure 4).
There are several rationales for minimum wages:

Minimum wages (if not set too high) may address the stronger bargaining power of
employers. There is reasonable empirical evidence that many individual firms have
some market power in hiring employees. This reflects the various frictions associated
with job search and matching. As well as having distributional effects, this means that
unregulated labour markets can suppress wages below their efficient level and, in some
cases, may actually reduce employment.

Minimum wages increase the pay levels of the lowly paid so long as they retain their
jobs and can work the desired hours.

However, even accepting such rationales, the question of the impacts on (and the risks they
pose for) employment and earnings is an empirical matter. Unfortunately, while some
confidently assert the matter is decided on one side of the debate or the other, the vast
international evidence and the (more limited) Australian evidence is not so definitive. Much
of it is beset by data and methodological limitations, or misinterpreted. That said, the
evidence suggests some patterns. If set below a modest level, the employment effects of
minimum wages would be likely to be negligible or even positive. Small increases in the
minimum wage are unlikely to have readily measurable effects on employment, but the
larger they become, the more likely that the hours available to existing workers will fall and
job opportunities for new workers (and sometimes for existing workers) will be lost. The
effects also depend on the characteristics of the labour force. Particularly low-skilled or
disadvantaged people have poorer prospects of employment at any feasible minimum wage.

OVERVIEW
DRAFT REPORT

13

Figure 4

Minimum to median wages for several OECD countries

0.65
France
New Zealand

0.6

Ratio

0.55

Australia

0.5
0.45

Netherlands
United Kingdom

0.4

Canada

United States

0.35
0.3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

The risk of jeopardising employment is just one consideration. The effects on household
income of annual wage reviews depend on:

how those pay increases affect all other wages in the economy. Australias unique
system of awards creates hundreds of wage floors for different jobs whose annual
growth rates are linked to changes in the adult minimum wage

the overall income of households where some people are paid at the minimum wage or
whose wage level is strongly related to it. Many employees with wages linked to the
minimum wage are not in low-income households. In 2013-14, around 30 per cent of
such wage earners were in the richest 40 per cent of working households (figure 5).
This reflects that many higher-income households have some family members in low
paid jobs.

the degree to which it reduces employment and hours worked. Unemployment is not
only strongly associated with lower income levels, but has highly adverse effects on
peoples wellbeing. As emphasised throughout this report, labour market outsiders tend
to have little voice in the current WR system, a defect that requires correction

possible dynamic effects. On the one hand, people facing the risks of unemployment at
high minimum wages may acquire skills to avoid this. On the other hand, for many
people, minimum wage jobs are a temporary part of their working lives, and indeed
such jobs can be a stepping stone into the world of work and higher paid jobs later.

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Many people receiving wages around the minimum wage are


from middle income households

Share of economywide employees by


income decile (%)

Figure 5
20

Paid close to the minimum wage


Paid above 110% of the minimum wage

15

14

14

12

12
10

10
9

16

15
13

12
9

8
6

5
5

2
0

16

Poorest 10%
of households

4
5
6
7
Equivalised income decile

10

Richest 10%
of households

Nevertheless, there is strong evidence that the minimum wage (and awards) tend to assist
those lower paid households that retain jobs, with a high share of low-income working
households on the minimum wage. In 2013-14, the likelihood that an adult employee in the
lowest decile of working households was at or close to the minimum wage was around
seven times higher than that for the top decile of households (figure 6).
Policy implications
Against that background, while some minimum wage is justified, the FWC faces
Goldilockss dilemma of determining the level that is just right.
That level has a long-run and short-run dimension. On the former score, it could be
expected that long-run minimum wages would grow approximately in line with
economywide productivity levels and maintain a roughly fixed ratio to median wages. That
long-run ratio might sometimes shift with the skills and capabilities of the jobless and
those employees paid close to the minimum wage. For example, if the average skills of
existing jobless people improved over a sustained period, there would be more scope to
increase minimum wages without significant adverse effects on their employment
prospects.
Over the shorter run, another set of considerations comes into play. Given the highly
adverse outcomes of unemployment for peoples wellbeing, whenever the economy is
weakening (as appears to be the case now), there are grounds for the FWC to temporarily
adopt a conservative approach to minimum wage setting. This does not require that
OVERVIEW
DRAFT REPORT

15

minimum wages fall, but rather that they grow at less fast a pace than during normal
economic times. Notably, real labour productivity in the market sector increased by
13 per cent over the five years from 2008-09 to 2013-14. Were this trend to continue, it
would be possible to increase the real incomes of the low paid, but set real minimum wage
increases just below the productivity growth rate, thereby simultaneously encouraging
employment of people currently priced out of the labour market (and assuaging
underemployment). In improved economic circumstances, minimum wages would catch up
to restore their long-run ratio to median wages.
But an employee in a low income group is much more likely
to be paid around the minimum wage rate

Share of employees in each income


decile close to the minimum wage (%)

Figure 6
60

51

37

40

34
26
19

20

18
13

Poorest 10%
of households

Equivalised income decile

10

10

Richest 10%
of households

Some have suggested that Australia should follow the example of some other countries that
have geographical variations in minimum wages. Currently, Australia has two minimum
wages a national minimum wage applying to most employees, and a Western Australian
minimum wage applying only to the employees of unincorporated enterprises in that state.
The difference in wage rates is very modest.
In contrast, some countries have multiple geographically varying rates with large
disparities between rates across regions. For example, Canada, Japan and the United States
have different minimum wages by state (and indeed, in some US states, even variations
between cities, Los Angeles being an example). In principle, such minimum wage
variations look attractive as they could be set at levels that took account of local labour
market conditions, thus reducing unemployment risks. However, there are many practical
difficulties in an Australian context, including doubtful constitutionality, interactions with
modern awards and the tax and transfer system, and complexity for national employers.
(Notably, few employers have called for geographically varying rates, even in regions
16

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where the labour markets are relatively weak.) The Productivity Commission does not
propose their introduction.
Complementary measures
A critical question is the degree to which the regulated wages system can effectively
achieve its re-distributional and social equity goals. Minimum wages were developed at a
time when it was typically only a man who worked in a household and when the social
welfare system was weakly developed both of which have now changed. However, the
welfare system itself has a limited capacity to alleviate income inequality because it can
stigmatise people, also discourage employment and embed social disadvantage.
That invites the question of new ways of providing income supplementation to the low
paid, while maintaining employment incentives. One approach is an earned income tax
credit (EITC), which many countries use to top-up the incomes of the low paid, typically
as a complement to minimum wages. For example, in its country report for the United
States, the OECD has recommended that as the Great Recession recedes, it should expand
its EITC and raise its minimum wage, indicating that hybrid policies are seen as
appropriate.
By design, EITCs encourage labour force participation, and the evidence usually suggests
that they do this, especially for single parents, though their effectiveness depends on their
exact design. However, they do have several drawbacks, including high levels of
overpayments (around one quarter of the funds in the United States), reduced incentives to
work for second earners in some households, and barriers to working above a certain level
of hours as household income rises. They must also be financed through taxes, which have
their own adverse economic effects. In an Australian context, any EITC would also interact
with a well-developed tax-transfer system, which is also intended to improve the incomes
of the low paid. The interactions between that system and an EITC would need to be
carefully assessed.
Reducing these incidental impacts is one reason why significant attention must be given to
the design of any instrument and the economic context in which it sits. The OECD has
highlighted that the impacts of in-work benefits depend on their design and the institutional
settings of each country. In its study of 15 European countries, it found that the efficiency
costs from in-work benefits were highly variable. The results were highly positive in some,
but questionable in others.
Some have claimed that there may be constitutional constraints for an EITC that extended
to single people as well as families, but this a complex area of law and is untested in this
context. (If this was an obstacle, the EITC might have to be narrower in its application or
state cooperation would be required.)
The Productivity Commission is seeking views on whether there are grounds for giving
further consideration to an EITC as a complement to minimum wages.
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17

Governments should not neglect other policies that are complementary to minimum wages.
These could include measures that improve the employability of less skilled people and
wage subsidies, but only where these are designed carefully and properly targeted.
Inevitably, improved social and economic inclusion requires more than a single policy,
which is why governments should seek to use minimum wages as part of a policy suite.

Wages for juniors, apprentices and trainees


The FWC sets out minimum pay rates for younger workers, apprentices and trainees. Wage
rates for juniors are a share of the adult minimum wage and increase with age until the
person reaches 21 years old (although some awards vary this). Similarly, trainee wage rates
also have an age-based structure, with rates depending on the time elapsed since leaving
school. Apprentice wages vary across awards and are set as a proportion of a qualified
tradespersons wage and increase the closer the apprentice is to completion.
Australia is one of around the fifty per cent of OECD countries that set youth wages as a
share of the adult rate. Indeed, notwithstanding the high ratio of the adult minimum wage
to median wages, Australian youth wages start at comparatively low levels relative to those
in many other countries. For example, a fast food level 1 employee aged under 16 years
could have more than a year of experience, but would get $7.59 an hour (44 per cent of the
adult minimum wage). In many states in the United States, many such employees would
receive at least US $8. The decisive test in some countries is not age per se, but also
experience, with substantially lower wages for someone with short experience in a job. In
the United States, the federal minimum wage is around 60 per cent of the adult minimum
for a person aged under 20 who has worked with their employer for less than 90 days. New
Zealand has a similar system, with no minimum wage for people aged less than 16 years,
and a discounted wage for 16- and 17-year olds with less than six months job experience
with their employer.
The Productivity Commission is wary about making any precipitate changes to the current
system of youth wages if that was to put at risk the employment of more vulnerable people
with lower skills. The transition from education to work is one of the critical pathways, and
changes that affected employment of the less academically able could have adverse
generational impacts. That said, the Productivity Commission is exploring a hybrid option that
recognises that experience or competency might sometimes justify a higher minimum wage.
The training system, of which apprenticeships and traineeships are a component, involves a
complex set of interlocking issues. The FWC has increased award wages for apprentices,
while the Australian Government also provides incentive payments to employers and wage
top-ups. These affect the relative attractiveness of apprenticeships to employers and
would-be apprentices, with unknown impacts.
These complex issues go beyond the scope of this inquiry as they also involve concerns
about the adequacy of skill formation and competency-based training and pay
arrangements. The Australian Government should undertake a comprehensive review of
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Australias apprenticeship and traineeship arrangements. This review should provide an


assessment of the appropriate structure of junior and adult training wages, as well as
government incentives.

National Employment Standards


The National Employment Standards (NES) specify minimum requirements for 10
conditions of employment including hours of work, various forms of leave and
redundancy pay. Awards, enterprise agreements and employment contracts cannot exclude
any elements of the NES, or provide ongoing employees with less favourable employment
conditions. The NES have attracted little controversy mainly because their prime
aspects (like annual leave) have a long and accepted role by all stakeholders and accord
with community norms. There is also considerable scope for flexibility. For example, an
employee can be required to work more than the standard hours if reasonable.
Nonetheless, there are concerns about several aspects of the National Employment
Standards.
The Standards specify eight national public holidays on which people are entitled to a paid
day of leave (and penalty rates of typically 250 per cent if they work). Public holidays can
yield community benefits by enabling coordinated social activities, particularly on days of
major cultural or spiritual significance. However, many people treat some national public
holidays as just normal days off, which throws doubt on their community function. The
FW Act allows awards and enterprise agreements to include terms that allow an employer
and their employees to observe a public holiday gazetted by government on a date other
than the one prescribed, but not all awards contain such provisions. All awards should
include the provisions so that the option of swapping holidays is available to all
workplaces.
Moreover, the Standards also recognise any public holiday declared by a state or territory
government. (In a bizarre twist, every Sunday is a public holiday in South Australia
though there is a tacit agreement to ignore this by most employers and employees.) So, by
declaring new holidays (say Grand Final Eve holiday), state and territory governments can
unilaterally create obligations under the National Employment Standards for any national
employer in their jurisdiction to provide further leave days with pay. The 2012 review of the
Fair Work Act recommended limiting the total days that would attract penalty rates to just
11. However, employers would still have to pay employees absent on additional state public
holidays. Should they want an employee to work on a public holiday, they would, for
commercial reasons, have to pay them significantly more than 100 per cent of their base pay
(since 100 per cent is what the employee would get if they did not go to work at all).
State and territory public holidays represent a policy conundrum in a national WR system,
given that a substantial goal of the new system was to avoid interstate variations. The
Australian Government should amend the National Employment Standards so that
employers are not required to pay for leave or any additional penalty rates for any newly
OVERVIEW
DRAFT REPORT

19

designated state and territory public holidays. (Existing state holidays should be
grandfathered.) Of course, employers and employees could still negotiate pay for any new
state-declared public holiday, but that would be at their discretion, not state governments.
Long service leave (LSL) is an Antipodean idiosyncrasy. It was invented in the mid-19th
century to allow citizens to sail to and back from England every decade. Despite its
peculiar origins, it now has strong community support. However, the National
Employment Standards do not prescribe any consistent national LSL arrangements, so that
there are relatively complex interstate variations. This means that national employers must
deal with a diversity of qualifying periods and entitlements for LSL across the different
arms of their national operations. This has been a longstanding complaint, and the last
review of the Fair Work Act recommended a uniform national approach. Any change
would produce winners and losers, and this may explain why there has been little appetite
by states to change the status quo. Overall, there remains some uncertainty about the net
benefits of moving to a uniform system, the appropriate transition to any such standard,
and the scope for some more minor simplification of the current system.

Awards
Awards are the regulations that describe various floors on wages and conditions for a wide
variety of skill levels across multiple industries. Relatively few people on individual
contracts are exactly on an award payment. Awards still influence other employment
contracts because some conditions (such as the span of hours or penalty rates) are derived
from them, the wages and conditions of some employees who are part of an enterprise
agreement largely reflect those in the relevant award, and because they form the regulatory
benchmark against which to test whether other employment contracts genuinely make
people better off.
Awards are a longstanding part of Australias workplace relations framework, with the
FWC and its various quasi-judicial predecessors determining awards for more than 100
years. They are unique to Australia (and New Zealand until 1991), and sometimes this is
seen as an indication that they are unnecessary. However, other countries have devised
alternative wage determination systems that often also embody rigid rules to protect the
low paid. And, while they are rigid and history bound, awards and the processes for
determining them have adapted over time (though not by enough):

20

For many years, awards were determined in response to industrial disputes, while now
reviews are scheduled as a stipulation of the Fair Work Act and are primarily used to
reassess their relevance, iron out anomalies, and ensure that the Modern Awards
Objective of the Fair Work Act is met. The Modern Awards Objective comprises
various unobjectionable, but often competing, goals. Awards must take into account the
living standards of the low paid, the need to promote social inclusion through increased
workforce participation, the need to provide additional remuneration for working
during unsociable hours, on shifts, or on public holidays, and the likely impact of

WORKPLACE RELATIONS FRAMEWORK


DRAFT REPORT

awards on business, productivity, regulatory burden, employment growth, inflation and


the performance of the economy.

With the advent of enterprise bargaining in 1993, the primary role for awards shifted
from being an instrument for setting actual wages and conditions to contributing to a
broader safety net containing various floors for wages and conditions (that is, from a
key driver of the system to a safety net). As part of this safety net, awards help to
balance the unequal bargaining power of employees and employers and increase the
wages and conditions for some employees above those that they would be able to
negotiate on their own. Awards have been effective in this role by reducing the
dispersion of pre-tax employment income (especially in the lower half of the household
wage distribution) and increasing the wages of low-wage workers.

Through the award modernisation process, thousands of awards were collapsed to just
122, so the system is simpler than earlier.

It is therefore likely that modern awards are less rigid and costly than their historical
predecessors. Nevertheless, they remain relatively inflexible and are often ambiguous,
imposing costs for employers and employees. (Even the Fair Work Ombudsman is
sometimes unclear about the interpretation of clauses.) In some instances, they are more
historical relics of the relative bargaining strength of past protagonists than a carefully
thought out way of remunerating employees.
However, few stakeholders recommended their elimination, but rather suggested reform
and the easier availability of alternative options for employment contracts. Most consider
that the (uncertain) benefits of eliminating awards might be outweighed by the cost of any
transition.

All parties suggested that the costs of transitioning to the modern awards between 2009
and 2014 were considerable (nightmarish according to some stakeholders). Any major
shift away from awards altogether would trigger costs of a higher magnitude again.
Removing awards would also require re-assessment of many other features of the WR
system. For example, what benchmark, if any, would be used for testing whether an
enterprise agreement really met some reasonable wage standards? A no-disadvantage
test is meaningless without a benchmark.

The current system does not appear to be producing highly adverse outcomes.

The tax-transfer system, while already highly developed, would need to further extend
its reach to emulate the re-distributive effects of awards.

Some of the distortions created in labour markets are beneficial since they address
unequal bargaining power and reduce the transaction costs of forming employment
contracts for small business.

Nevertheless, there are strong grounds for improving the award system.
One relatively straightforward step already partly underway relates to the form of
awards, rather than their content. Awards should be easier to understand and no more
OVERVIEW
DRAFT REPORT

21

complex than they need to be. As the Business Council of Australia notes, many awards
are unclear on penalty rates and overtime requirements. Awards should be in plain English
and be written to avoid the mistakes and misunderstandings that arise from the present
ambiguities of awards.
A more fundamental challenge is how to address the more systemic flaws in awards,
without repeating the transitional costs of award modernisation. After the completion of
the current four yearly award review (whose scope is considerably constrained), the FWC
should adopt a different approach to its amendments to awards. It should undertake careful
empirical analysis into the aspects of awards that are the source of the greatest problems
hotspots. It should then consider how it might vary awards to address these on a thematic
basis. Those hotspots cannot be determined ahead of analysis, but any analytical
framework would attempt to identify the award variations (such as in allowances, wage
rates, penalty rates, and spans of hours) that were genuinely problematic, rather than
merely untidy.
The FWC should also make changes to awards where there are easy gains from adding
consistency or where anomalies become apparent.
However, there is no need for the FWC to review all aspects of awards, term by term. That
would be an ambitious task, with diminishing returns and high costs for stakeholders. Once
the current four yearly review has been completed, these periodic reviews should cease.
Future assessments should be undertaken on a needs basis.

Regulated penalty rates for shift, overtime and weekend work should
stay
Many Australians work non-standard hours either by working longer than the 38 hour
norm under the National Employment Standards or by working at non-standard times, such
as at night or on weekends. They are compensated by regulated premiums on normal wage
rates (sometimes generically categorised as penalty rates).
Penalty rates are strongly dependent on when work is undertaken and the total time spent
working. The three principal time-related wage rates are:

shift loadings, and weekend and evening pay premiums. These are requirements placed
on employers to pay additional wages at certain times of the day or on certain days of
the week, and are not dependent on how many hours in total a person has worked
during the week

overtime rates, which represent higher wage rates for hours worked greater than the
usual ordinary hours listed under an award or an agreement

payments for working on public holidays.

There are compelling grounds for premium rates of pay for overtime, night and shift work:

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Long hours of work involve risks not only to an employees health and safety but also
for the community. (Long working hours are not rare. In mid 2015, around 2.8 million
Australian employees reported working more than 40 hours per week and over
1.5 million reported working 50 hours or more per week. In 2012, around one third of
employees worked overtime.)

There are proven adverse health effects from night shift and rotating shift work.

By definition, public holidays are intended to encourage shared community activities.


As such, there are strong grounds for deterrence against their use for working, but with
some flexibility to provide some services on these days. The appropriate rate for public
holidays would need to account for (a) the fact that as is normal for other leave, public
holidays are generally paid at ordinary wage rates despite the fact that people are not
working, and (b) the additional requirement to deter activities that undermine the
intended goal of such holidays.

Regulated minimum penalty rates recognise the impacts of such work and that absent
regulation, the weaker bargaining power of employees may not lead to adequate
compensation. The Productivity Commission has not recommended any changes in these
rates. This is also in line with the views of participants in this inquiry, who did not raise
any significant concerns about penalty rates for overtime, night or shift work.
Sunday penalty rates in the cafes, hospitality, entertainment, restaurants and
retailing industries
In recent years, there has been intense debate about penalty rates for just one type of work
weekend work in the hospitality, entertainment, retailing, restaurants and cafes
industries.
The same controversies have not occurred for other industries. The community, employers
and customers have long accepted weekend work and associated high penalty rates in other
parts of the economy (agriculture, transport, utilities, those parts of manufacturing
requiring continuous production, health and emergency services). Notably, in New
Zealand, where regulated penalty rates no longer apply, employers still pay penalty rates
commensurate with Australian rates for many of these industries.
However, for many years, the community did not accept weekend work where seven-day
operations were not essential for the community or for the efficient operation of the
economy. The crucial development in the past few decades has been the growing demand
for the weekend supply of certain services, precisely in the industries where penalty rates
have become a controversial issue. Increased female workforce participation rates, the
reduction in religious observance, changing social norms about shopping times, the
softening of trading hour restrictions, and the emergence of international online commerce
will have contributed to this.

OVERVIEW
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23

However, the quid pro quo to growing consumer demand on weekends is the requirement
that someone must supply the labour to provide these services at these times. Australian
surveys show that most employees value weekends more highly than weekdays. In an
unregulated well-operating market, it could be expected that penalty rates would be needed
to elicit sufficient labour supply on weekends. But labour markets are not perfect (which is
why workplace relations systems exist in the first place). Individual businesses possess
some bargaining power in respect of the labour they hire, with the risk that market-set
penalty rates would be lower than they should be. Community standards about the
reasonable rates for working on weekends in such industries are also relevant.
The question is then whether regulated weekend penalty rates are set at the right level. In
the controversial industries, the average skill levels are low, job tenure short, much of the
work is part-time and casual, the average age of employees is low and award dependence is
relatively high. The frictions from moving from job to job do not appear to be high. The
overall evidence suggests that the employers in such industries are not likely to have the
same level of bargaining power over their employees as in many other industries, and
accordingly, that the businesses are likely to have a weaker capacity to depress wages on
weekends.
Large premiums in wage rates for such employees are more likely to elicit reductions in the
demand for hours and employment than in many other industries. While the FWC and its
predecessors have always (legitimately) argued that the social costs from working asocial
hours warrant some penalty rate, they have generally not considered the relevance of the
strength of bargaining imbalances and the type of employee in determining penalty rates.
Moreover, on average, award modernisation raised average penalty rates in the relevant
industries. This is notwithstanding that one plank underpinning regulated weekend penalty
rates the notion of deterring weekend work is now acknowledged by the FWC,
unions and businesses as irrelevant.
The result is some surprising anomalies, particularly in relation to Sunday penalty rates.
Under the present award, an inexperienced level 1 pharmacy assistant with limited
qualifications who worked ordinary hours on a Sunday is paid around 40 per cent more
than the usual weekly rate for an experienced pharmacist (who requires four years of
undergraduate training, a one-year internship and ongoing professional development). In
effect, the return to skills are much lower than the returns from working at a different time
of the week and by a large margin.
Moreover, rates for Sundays (usually around 200 per cent of base pay) appear particularly
at odds with rates for times that are also important for social activities (evenings), and to an
even greater degree for times that pose clearly demonstrated health risks (night shifts and
rotating shifts). Evening/afternoon shift penalty rates can be as low as 10 per cent and night
shift loadings as low as 15 per cent (figure 7). Survey evidence shows that the overall
social costs of daytime work on Sundays are similar to Saturdays, and consistently lower
than evening work (figure 8).

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The Productivity Commission recommends that Sunday rates in the hospitality,


entertainment, retailing, restaurants and cafes industries should be brought into line with
Saturday rates.
Employment and hours worked on Sundays would rise after the change. Lower regulated
penalty rates are likely to increase the opening hours of businesses and encourage higher
staffing ratios, with the job opportunities that this presents for people. It would also
provide a greater capacity to employ more experienced, often permanent, employees
(whose hourly labour costs are particularly high under current penalty rates). Lower
penalty rates would also be likely to reduce the incidence of weekend work by small
business owner-managers, who often work long hours to avoid high labour costs.
Reductions to Sunday penalty rates will particularly affect the incomes of people who
work Sundays only. While there are relatively few such workers in the hospitality,
entertainment, retailing, restaurants and cafes industries, the Productivity Commission
proposes a lag before any change occurs, allowing people to adjust their lives and working
patterns. Moreover, there will be positive outcomes for people who cannot currently obtain
jobs in the relevant industries.
In the longer run, businesses would not be the beneficiaries of deregulated penalty rates
given the high levels of competition in the relevant industries. Instead, consumers would
benefit from more convenient access to services they value highly and, in some cases,
lower prices (for example, through the ending of Sunday surcharges in restaurants and
cafes). Failure to recognise the current impacts of high Sunday rates in the relevant
industries will also have longer-run effects by frustrating new business models (and the
employment they can bring). For example, there are complementarities between online
supply and opening hours of some bricks and mortar stores, as in click and collect
services.
Changes to Sunday penalty rates would desirably occur as part of the current four yearly
review.

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25

Effective penalty rates by day and time of the week

Figure 7

Permanent and casual employees in the hospitality industry

Penalty rate (%)

250

Casual
Permanent

200
175 175

150

135

125

100

Weekday day

125

115

110

100

150

140

Weekday
evening

Weekday night

Saturday

Sunday

The social disabilities of working on Sundays are always


less than evening work and sometimes less than Saturdaysa

Figure 8

Percentage points difference from


standard hours

15
13.2

10

10.9

5
0
-5
-10

12.9
8.2

6.3
4

4.6

2.8
-2.9

-4.1

Saturday

-2.7

-9.5

Sunday
Evening

-15

Feels rushed

Interferes with
outside activities

Satisfied with life


balance

Interferes with
family/friends

a The results control for other factors that affect social disabilities, such as having young children.

26

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Protecting employees

Australia has a range of laws that protect employees from discrimination, bullying, unfair
treatment and dismissal. While sometimes depicted as onerous, complex and
overprotective, objective measures of such employee protection arrangements around the
world suggest that Australia has one of the more light-handed suites of arrangements.

Unfair dismissal
Australias WR system provides remedies for workers who are dismissed in a harsh,
unjust or unreasonable manner. The FWC may order the unfairly dismissed employee to
be reinstated, or paid compensation where reinstatement is not feasible.
Unfair dismissal arrangements reflect that employees and employers are not always angels.
Employees may underperform, be disruptive or behave badly. Firms and labour markets
can only function efficiently if managers have the power to demand behavioural change by
poorly performing employees and, absent that, to dismiss or otherwise penalise them. On
the other hand, employers may bully workers, make unreasonable demands (such as
working longer without pay or overlooking safety issues) or may dismiss people based on
prejudice, whimsy or without due process. Accordingly, there is a need for some balance
between the prerogative of businesses to manage and the rights of employees to fair
treatment.
The prevalence statistics show that unfair dismissal claims remain relatively small in
proportional terms across the Australian labour force and that employers only infrequently
encounter unfair dismissal cases. It appears that even where employees are dismissed with
cause, around 90 per cent make no claims, and of those that do, around half receive
compensation.
Perceptions aside, there is little evidence that unfair dismissal laws are a major obstacle to
hiring, especially given the relatively long probationary periods that exempt an employer
from any claims (six months for an employer with 15 or more employees and one year for
smaller businesses). Conciliation processes may sometimes be rough justice in that the
full circumstances of a case are not tested meticulously. However, once unfair dismissal
claims go to arbitration, the outcomes can be very uncertain (and far more costly than
conciliation) and, as observed earlier, some inconsistency is evident.
The costs of progressing cases through conciliation and arbitration provide incentives for
businesses to pay go away money to employees who claim employers have unfairly
dismissed them. While it no doubt occurs, there is insufficient data about the extent of go
away money, and how it can be distinguished from cases where the employer and the
employee agree that the justification for dismissal is not clear cut.
The most problematic aspect of the current legislation is that an employee who has clearly
breached the normal expectations of appropriate work behaviour may nevertheless be
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27

deemed to have been unfairly dismissed because of procedural lapses by the employer. For
example, in one case a business dismissed two employees after they assaulted their
supervisor. 1 The FWC concluded that their physical assault was a valid reason for
dismissal, but that the employers failure to follow certain procedures meant that the
dismissals were unjust, unreasonable and therefore unfair.
Moderate and incremental reforms can address the current flaws, while leaving much of
the existing legislation and its legitimate protections intact:

The Fair Work Act should be amended so that procedural errors alone are not sufficient
to award compensation or restore employment in what would otherwise be regarded as
a valid dismissal. Nevertheless, procedural errors by an employer should, at the
discretion of the FWC, lead to either advice to the employer, or where serious or
repeated, financial penalties.

There should be more upfront filters that focus on the merits of claims.

Somewhat higher lodgment fees may also assist in limiting the automatic recourse to
the FWC, but these would likely have to be tailored to an employees income, and vary
depending on whether conciliation or arbitration was being sought. The Productivity
Commission is seeking more views on this.

To reduce some of the present inconsistencies, the governance of the FWC should be
reformed along the lines discussed earlier.

The emphasis on reinstatement as the primary goal of the unfair dismissal provisions
should be removed. Good legislation should not give primacy to a goal that is rarely
achieved and not necessarily even in the interests of the parties involved.

The above reforms, complemented by further targeted provision of information and


regulator engagement with small business, will deal with many of the current issues
experienced by small businesses. Subject to implementation of these reforms, the Small
Business Fair Dismissal Code should be removed. The basic premise of assisting small
business to navigate the complexities of unfair dismissal legislation is reasonable, but
the Code does not achieve that outcome and provides a false sense of security.

The general protections


The general protections provisions of the Fair Work Act comprise a lengthy (sometimes
relatively technical) set of prohibitions against conduct by employers and industrial
associations that breaches an employees workplace rights adverse action. For
example, adverse action might comprise discrimination against employees because of their
union membership (or in some cases because they are not union members). There are very
strong grounds for such protections, as employees should not be subject to disadvantage
for reasons unrelated to their actual work performance.
1 Sheng He v Peacock Brothers & Wilson Lac v Peacock Brothers (2013) FWC 7541.
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However, there are some deficiencies in the current arrangements.


The General Protections are broad and sometimes ambiguous. Unlike the specific unfair
dismissal provisions, they provide uncapped compensation, which provides incentives to
use them as a more lucrative avenue for compensation for dismissals. Moreover, an
employee dismissed for underperformance or breaching workplace codes of conduct has
strong incentives to claim that some other non-permitted reason was the true basis for the
dismissal (for example, because they had complained about some aspect of management),
even if this claim was confected. These factors may have been one of the accelerants for
the rapid growth of dismissal cases under the General Protections. (Dismissal cases
account for nearly 80 per cent of total General Protection cases).
This is not to say that many cases are not genuine. However, a well-functioning system
should be designed to limit perverse outcomes, not just because this avoids inefficient and
unfair outcomes, but to shore up its integrity. Regulations that lack credibility do not serve
the interests of employees with a strong basis for their claims.
A further issue is that business restructuring (for example, moving to labour hire
arrangements or adopting labour-displacing technology) sometimes has adverse
consequences for existing unionised employees. Some employers claim that such
consequences may be depicted as adverse action, which could stymie efficient
transformation of businesses. However, while there are some instances where the adverse
action provisions may have hampered an employers legitimate prerogative to manage
their businesses to maximise productivity and minimise costs, there is little evidence that
unions have systematically frustrated structural change. Accordingly, any response to this
apparent problem has to be circumspect.
One notable feature of the General Protections is that the onus is on the employer to prove
that adverse action has not occurred. Since employees cannot be in a position to acquire the
information to prove intent, there is reasonable justification for such a reverse onus.
However, some stakeholders claimed that the reverse onus of proof, while of itself
unproblematic, can nevertheless trigger a discovery process that allows a union or court to
sift through potentially hundreds of thousands of documents in search of intent (and this
has occurred). Doing so may not only be costly in its own right, but may disclose many
aspects of a business that would be unreasonable to expose to third parties. Moreover, the
court processes that accompany adverse action cases are slow (years can pass), creating
large administrative and legal costs and frustrating business plans. However, in its Access
to Justice inquiry report, the Productivity Commission found that many superior courts,
particularly the Federal Court, have taken significant steps to curtail discovery. This has
generally reduced costs and timelines.
Courts are now also successfully addressing a previously identified prime problem. Some
key High Court cases have established legal precedents that an adverse action case will not
succeed because of some coincident possible breach of a workplace right (such as dismissal
of a union official who has performed poorly). To the extent that the precedent is observed in

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29

other cases, adverse action would require that such a breach was, on examination of the
subjective intentions of the decision maker, the main reason for the dismissal.
Other modest reforms can address the other limitations:

The currently quite uncertain complaint trigger for protection of a workplace right
needs to be better defined.

Consistent with reform in judicial processes in several jurisdictions, the Fair Work Act
should be amended to make the discovery process used in adverse action cases
proportional to the issue at hand.

These measures would not throw the baby out with the bathwater. Strong protections
should remain in force.

Anti-bullying
Bullying can have devastating consequences for people, which is why various laws have
attempted to discourage it by penalising those who engage in it or who permit it to happen,
and by providing compensation to victims. There are multiple avenues for addressing
bullying such as through various anti-discrimination and workforce health and safety
laws, and since January 2014, as an addition to the Fair Work Act.
The Fair Work Act accords a key role to the FWC in overseeing this new jurisdiction. As is
the case for unfair dismissal, the FWC is the mediator, conciliator and, as a last resort,
adjudicator. The FWC can make any order it considers appropriate to stop the bullying.
However, it cannot make orders requiring payment. Workers may be able to seek
compensation through other means, including workers compensation, workplace health
and safety, and common law claims. A failure to comply with FWC orders would expose
the employer and/or the relevant bullying party to civil penalties.
While some have questioned whether anti-bullying provisions needed to be incorporated
into the Fair Work Act given the other avenues for addressing the issue, the expected
barrage of claims has not materialised. In fact, over 2013-14, the FWC received only 197
applications for an order to stop bullying (FWC 2014), with 21 finalised by a decision. Of
these, only one application resulted in an order to stop bullying. However, the provision is
resource intensive for the FWC as evidence provided by applicants can be extensive, if not
always substantive.
Overall, while the FWCs current approach appears to be considered and effective,
sufficient time has not elapsed to reach a final judgment on the effectiveness of the
provision. A post-implementation review is already scheduled, and this would provide a
timely opportunity to assess the operation of the jurisdiction.

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Enterprise bargaining

Following almost one century of centralised conciliation and arbitration, Australia


introduced enterprise-level bargaining in 1993. Enterprise bargaining involves employees
working together to reach an agreement with their employer over the terms and conditions
of their employment. Enterprise bargaining can potentially yield efficiencies through
negotiating and using one, rather than many, individual arrangements. It is also a vehicle
for a delicate balance between the parties interests. On the one hand, it provides a
counterweight to the bargaining power of the employer (the adversarial aspect to
bargaining), and, on the other hand, the scope for cementing cooperation between parties
that have a mutual stake in the efficiency and performance of the individual enterprise.
Enterprise bargaining provides some flexibility to take into account the special
circumstances of any one firm. This contrasts with collective bargaining across multiple
enterprises and industries (the arrangements preceding 1993), which did not have a focus
on the individual enterprise.
The Fair Work Act has detailed rules around enterprise bargaining. While the bulk of
agreements appear to be formed with no difficulty and with benefits for all parties, there
are several flaws in the current arrangements.
Where a staple can undo an agreement
Peabody Moorvale Pty Ltd 2 provided three pages stapled together to all of the
employees to be covered by a proposed enterprise agreement. Some bargaining ensued, an
agreement was struck and the agreement was lodged with the FWC. However, by attaching
the three documents together, the employer contravened requirements about the form of
notice to be given to employees. The FWC had no real discretion in the matter, and was
obliged by the Fair Work Act to reject the agreement. So, absurdly, the employer had to
recommence the agreement process. There is a convincing variety of similar examples.
While there are often good reasons for imposing procedural requirements (for example, to
prevent employers including extraneous and potentially misleading information in a notice
to employees), substance rather than form should prevail, which is a recurring theme in this
inquiry. In this type of instance, the solution is that the FWC should have the discretion to
overlook a procedural defect (that poses no risks to employees) without requiring an
undertaking by the employer.
Good faith bargaining
The good faith bargaining requirements appear to be working relatively well. While some
have advocated for time limits on bargaining, this would reduce the incentives for parties
2 Peabody Moorvale Pty Ltd v Construction, Forestry, Mining and Energy Union [2014] FWCFB 2042 (2
April 2014).
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31

to agree among themselves. A central tenet of the shift to enterprise bargaining was to step
away from third party arbitration. The FWC already has sufficient powers to step in, as a
matter of last resort, when there are repeated breaches of the requirements. The good faith
bargaining requirements should also be applied to greenfields negotiations, as
recommended by the 2012 review of the Fair Work Act.
The better off overall test (BOOT)
The application of the BOOT is creating uncertainty during the bargaining process and at
the agreement approval stage. The main source of confusion lies with how to assess
whether the relevant groups of employees (or prospective employees in the case of a
greenfields agreement) are better off overall compared with the relevant award. A
particularly vexing issue for both enterprise agreements and individual flexibility
arrangements is how to trade off non-monetary benefits against other benefits of an
award.
While the BOOT is not in principle defective, in practice it has sometimes lent itself to a
line by line approach, which involves assessing whether the relevant class of employees
are made better or worse off by each individual term in the agreement when compared with
the relevant term in the award. The intention of the BOOT was that it should be a global
test, which takes into account the sum of all the benefits of an agreement and tests those
against the overall benefits of the award. Shifting to a new no-disadvantage test is likely
to assist in supporting that intention. It would still ensure that employees were not
disadvantaged compared with the award an essential requirement while allowing
employees and employers to develop agreements that represent wins for both parties.
Changing to this test should be complemented by more detailed, practical guidance on the
new no-disadvantage test from the FWC (in concert with similar advice given by the Fair
Work Ombudsman to employers and employees developing individual arrangements or
enterprise contracts see later).
Greenfields agreements pose major dilemmas in regulatory design
The unique circumstances of bargaining for a greenfields agreement warrant a different
regulatory approach. Such agreements are struck between a union and a new enterprise that
has not yet hired any employees. Since 2011, the use of greenfields agreements has
expanded. Greenfields agreements now make up 10 per cent of all enterprise agreements,
up from 6.4 per cent in September 2011. Greenfields agreements are most prevalent in
construction projects, which make up roughly two-thirds of greenfields agreements.
However, they are also currently used in many other contexts, including healthcare and
manufacturing, so they do not always relate to large capital-intensive projects with a given
life. However, the problems of the agreement-making processes strike most hard for such
projects.

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The main concerns are that large capital-intensive projects require some certainty about the
start date of the project to secure finance, to plan the project, and to more generally manage
risk. Unions capacity to hold out in their negotiations provides them with unique and
excessive bargaining power, and risks stripping some of the needed returns from inherently
risky projects. Unlike other enterprise bargaining processes, the usual disciplines for
speedy bargaining the absence of pay increases for an existing workforce are not
present.
There are no easy solutions. Avoiding all uncertainty for employers would shift the balance
of power too far in their direction. Allowing the FWC to determine the best outcome
would be at odds with the desirability of leaving essentially commercial decisions in the
hands of those parties with the greatest information. The Productivity Commission has
devised a menu approach, which would allow parties to choose between three options. If
an employer and union have not reached a negotiated outcome for a greenfields agreement
after three months, the employer would be able to:

continue negotiating with the union. This would only occur if the employer was
confident that a reasonable agreement could be reached, and that the cost of waiting
was not prohibitive. It is nevertheless likely that constructive dialogue between the
parties not always guaranteed by the instinctive culture of the two parties may go
a long way

request that the FWC undertake last offer arbitration of an outcome by choosing
between the last offers made by the employer and the union. The FWC would not
re-open the matter to make its own judgment, but would merely act as an umpire for the
two choices put to it. Knowing this, the parties to the agreement would have strong
incentives to make reasonable claims. It would, however, still require that the FWC
consider the proposals with a high degree of expected impartiality. The 2012 review of
the Fair Work Act also recommended that last offer arbitration be used to resolve
stalemates in greenfields negotiations

submit the employers proposed greenfields arrangement for approval by the FWC
without any need for union agreement, with a 12-month nominal expiry date. At that
point, the business would have hired employees, and a normal enterprise bargaining
round could occur. The advantage of this menu option is that the employer would have
the capacity to negotiate tradeoffs with employees that unions might be unwilling to
accept. On the other hand, such bargaining could also lawfully trigger industrial action,
with the potential to delay a large already committed project. This would give
employees and their representatives a potentially high degree of leverage. An employer
facing those risks would be unlikely to select this menu option. It would, however, be
much more likely to be attractive to non-capital-intensive greenfields arrangements in
which an employer wanted to engage positively with its employees.

Regardless of the agreement making process chosen by the employer, the ensuing
greenfields arrangement would have to pass the proposed no-disadvantage test.

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33

Another complementary mechanism that would also reduce the hold-up problem and
uncertainty for construction greenfields projects would be the capacity for an employer to
form an agreement whose duration matched the life of the construction project (with
approval from the FWC if that duration exceeded five years).
The content of enterprise agreements
While all enterprise agreements must include a flexibility term that allows parties to make
an individual flexibility arrangement (see later) to vary the conditions of an enterprise
agreement, the range of matters over which such individual arrangements may be made can
be whittled down during the bargaining process. Such a narrowing of options should not be
permitted.
The range of matters that should be permitted in an enterprise agreement is an area of
fierce contention. Employers generally wish to reduce the range of matters over which
bargaining can occur, based on the primacy they give to managerial prerogative, while
employees seek a more expansive range of matters (for example, in relation to the use of
labour hire or subcontractors):

There are grounds for changes to the Fair Work Act to limit the capacity of agreements
to regulate the use of contractors and labour hire (which are in any case, in spirit,
contrary to the Competition and Consumer Act 2010 (Cth)).

In terms of permitted matters more broadly, the Fair Work Act deliberately moved
away from the legislative prescription in previous regimes to a reliance on
jurisprudence about matters pertaining. This concedes that it is hard (and perhaps
undesirable) to set out a white or black list of all permitted matters without reference to
context. Apart from the employment of labour hire employees and contractors, further
evidence is required to assess whether particular sorts of terms should or should not be
permitted.

Despite calls for the introduction of productivity clauses within all enterprise agreements,
this might perversely generate outcomes inimical to productivity and be counter to
managerial prerogative. Most employers constantly look for ways to improve productivity
in ways that do not require any quid pro quo in terms of increased wages and conditions
(for example, if the business invests in more productive equipment or innovates). Where
there are gains from cooperation, employers, employees and their representatives already
have strong incentives to commit to productivity improvements and, where possible, to
specify ways in which this might be achieved through enterprise agreements without
resorting to new regulation.

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Bargaining representatives must represent more than a trivial share of the


workforce
Multiple non-union bargaining representatives who represent small groups of employees
can add considerably to the cost and smooth progression of bargaining. There should be a
requirement that a non-union party can only act as a bargaining representative if they have
secured the support of a reasonable share of the workforce. (The Productivity Commission
has proposed 5 per cent, but a different value may readily achieve the same objective.)

Individual arrangements

Even when part of an enterprise agreement, all employment contracts are, in law,
individual arrangements. A WR system merely provides different ways in which such
contracts can be packaged, weighing up the advantages and disadvantages of individual
flexibility, the costs of contract variations across workers in the same enterprise, and the
risks of power imbalances that arise from different contractual arrangements.
While most employees are paid at rates determined by an enterprise agreement or stipulated in
an award (figure 1), a sizeable minority are paid on an individual basis at above-award rates. A
relatively few around 2 per cent of all employees covered by the Fair Work Act have
formed so-called individual flexibility arrangements under the Act.
In principle, individual flexibility arrangements allow an employee and employer to
negotiate terms and conditions that suit their personal circumstances. For example, an
individual flexibility arrangement may change rostering arrangements to suit an employee
and an employer. An individual flexibility arrangement may allow, but does not require, an
employee to forgo some award or enterprise agreement conditions so long as they pass a
better off overall test as described above. (The BOOT is against the enterprise agreement
if an employee is opting out of the agreement, but otherwise against the pre-existing award
or award-based arrangement.) No agreement can trade off conditions specified under the
National Employment Standards.
Individual flexibility arrangements represent a new marque of statutory individual
arrangements, and supersede several variants of Australian Workplace Agreements
(AWAs). Under WorkChoices, AWAs were not subject to a no-disadvantage test, and were
contentious because some employees who lacked bargaining power had their entitlements
reduced. Such AWAs were offered as a condition of employment (take it or leave it) and
had a low safety net threshold. Available data suggest the take up of AWAs was around
3 per cent of employees. Prior to WorkChoices, AWAs had stronger protections and were
less controversial.
It is surprising that employees and employers have not used individual flexibility
arrangements more frequently, as they offer considerable flexibility, provide protections
for employees, and are not hard to make. One immediate and easily implemented reform
OVERVIEW
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35

would be simply to better advertise the option of an individual flexibility arrangement to


employees and employers. Many have not even heard of them.
Some of the other obstacles to their use are more perceived than substantive, but are still
worth remedying.
For example, employer groups argue that the ambiguity about the BOOT makes them
reluctant to form an agreement lest subsequently the Fair Work Ombudsman finds that
they breached the test. This concern arises because individual flexibility arrangements are
not vetted against the BOOT by the Fair Work Ombudsman when they are made (to avoid
the large transactions costs of doing so). However, unless there has been egregious conduct
(such as coercion to make an agreement), the most likely outcome of a breach of the
BOOT would be immediate termination of the agreement and reversion to the award,
enterprise agreement or other pre-existing arrangement. There have been very few
instances where the Fair Work Ombudsman has acted against an employer in respect of an
individual flexibility arrangement. And surveys of employers (as opposed to the views of
employer groups) suggest that fear of failing the BOOT at some future date is not a major
obstacle. Nevertheless, there appears to be no harm in eliminating any perceived risks
where they do not undermine the protection of employees. The switch to a no-disadvantage
test as discussed above would represent a straightforward remedy, as would guidance to
businesses and the development of example agreements that would be compliant.
Another potential deficiency is that employers can be reluctant to invest in flexible
arrangements because an employee on an enterprise agreement can terminate an individual
flexibility arrangement with 28 days notice and individual flexibility arrangements can
only be offered to existing employees, rather than as a condition of employment. Short
notice can expose businesses to financial and operational risks. As a concrete illustration, a
business might set up rostering arrangements underpinned by commitments by employees
set down in individual flexibility arrangements, only to find that the termination of several
of these made the arrangements untenable. By reducing their expected return, the risk that
individual flexibility arrangements may be terminated soon after their formation may
undermine the incentives for managerial innovations. Likewise, rapid termination by an
employer can adversely affect employees who may have made flexible home arrangements
(for instance, to coordinate childcare with working times) only to find them vanish.
The evidence about the severity of these problems is weak but, as in the previous case,
there is a remedy that has few downsides. The Australian Government should amend the
Fair Work Act so that the minimum termination period should be 13 weeks (as proposed in
the 2012 review of the Act), but with the capacity of employers and employees to agree at
the formation of the agreement to a one year minimum period.

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A possible new type of agreement that spans individual and enterprise


agreements the enterprise contract
However, even with these changes, it is unlikely that the prevalence of truly bespoke
individual arrangements would ever be high, simply because of the high transaction costs
of their negotiation. This is especially so for businesses with high staff turnover or that are
rapidly expanding. The scope of individual flexibility arrangements is determined by
particular clauses (the flexibility term) in the overarching award or enterprise agreement,
which can be quite restrictive.
In principle, businesses could still achieve flexible arrangements across their operations by
negotiating enterprise agreements but, as discussed later, such agreement making is still
rare amongst small and medium-sized businesses. This is because the procedural aspects of
such bargaining can be daunting (though the perceptions are probably worse than the
reality).
To meet the needs of such businesses, the Productivity Commission is floating the option
of a new type of statutory arrangement the enterprise contract (figure 9).
This would permit employers to vary an award for entire classes of employees (level 1
retail employees, for example), or for a group of particular employees, without having to
negotiate with each party individually or to form an enterprise agreement.
It would effectively amount to a collective individual flexibility arrangement, but with
some further flexibility. Employers could offer it to all prospective employees as a
condition of employment (resembling enterprise agreements, where new employees are
covered by an existing agreement when they are hired). No employee ballot would be
required for the adoption of an enterprise contract, nor would any employee group be
involved in its preparation and agreement unless the employer wished this to be the case.
As in enterprise agreements, employers and individual employees could still negotiate
individual flexibility arrangements as carve outs from the enterprise contract if they
mutually agreed.

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37

Figure 9

38

Making an enterprise contract

The enterprise contract would be accompanied by a comprehensive suite of safeguards and


measures to reduce the transaction costs of its adoption:

Existing employees would be able to choose whether to sign on or stay with their
existing employment contract.

The enterprise contract would be lodged with the FWC, but unlike enterprise
agreements would not require ex ante approval. Ex post, lodgment would enable the
FWC, after a complaint by a covered employee, to test compliance using the (holistic)
no-disadvantage test, as for individual flexibility arrangements. Where a complaint was
upheld, the Fair Work Ombudsman would be empowered to vary the contracts of all
other relevant employees.

Lodgement would also allow the FWC or the Fair Work Ombudsman to analyse the
nature and trends in such agreements, and to provide a basis for industry templates that
would enable any business to adopt an agreement with the surety that it would pass a
no-disadvantage test (with equal certainty for an employee). Transparency would also
allow employees to assess where any particular take it or leave it contract fitted
among the spectrum of offerings provided by various competing businesses, giving
them information that could influence their choice of employer.

The employer would be required to provide employees with a written form of the
contract, so they were aware of its entitlements and obligations. The incremental costs
of doing this would be negligible, as the business would have to lodge the agreement
with the FWC. This would be particularly easy where the employer adopted a template.
The Fair Work Ombudsman would provide an easy guide for employers and employees
about enterprise contracts.

Employees could exit the enterprise contract after one year and return to the award (or
any other agreed contract).

The enterprise contract would also have an expiry date, at which time parties would have
to select among various contract options, including continuation of the current contract, an
adapted version, separate individual arrangements or an enterprise agreement. In the latter
respect, enterprise contracts might provide a natural vehicle for progression to standard
enterprise agreements as employees could, after one year, elect through a majority vote to
commence enterprise bargaining.
However, the desirability, practicalities and detailed design of an enterprise contract needs
to be tested further.

Industrial disputes and right of entry

The credible threat of industrial action by both employees and employers is an important
negotiating tool for parties engaging in enterprise bargaining, helping to reduce
asymmetries in information and bargaining power. Nevertheless, there need to be rules that
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ensure that neither employers nor employees hold too much power and that take account of
the economywide effects of major disputes.
The existing provisions outlined in the Fair Work Act governing industrial action are
extensive and complex. Numerous conditions and procedural steps must be satisfied by
employees to obtain authorisation to undertake lawful (protected) industrial action during
enterprise bargaining. (Industrial action is unlawful outside the bargaining period.)
Employers are provided notice in advance of protected industrial action and have the
ability to respond with contingency plans or by lockout. Employees are not paid while
engaging in any action (and indeed it is unlawful for an employer to do so). There are also
multiple avenues through which protected industrial action can be challenged by
employers, or suspended or terminated by the FWC or the Employment Minister (with the
latter only possible in special public interest circumstances). Penalties are in place for
parties that engage in unprotected industrial action.
Industrial disputes do not appear to be a major problem in Australias WR framework. The
measured prevalence of industrial action has declined substantially over the past three
decades, and has remained relatively low in recent years. The average number of days lost
over the past five years was less than one tenth of the days lost on average from 1985 to
1990. Moreover, despite the views of some employer groups, the level of disputation does
not appear to have meaningfully increased following recent changes to the WR framework.
Indeed the biggest contributor to some recent spikes have related to public sector disputes
that are outside the scope of the Fair Work Act. Nevertheless, some forms of industrial
action for example, work bans creep below the statistical radar.
Regardless, there are several shortcomings in current arrangements that allow the excessive
strategic use of industrial action.

The Fair Work Act permits industrial action after the expiry of an enterprise agreement,
but before bargaining has commenced. Since employees can always compel an
employer to commence negotiations through a majority vote, there is no rationale or
community interest in permitting industrial action prior to bargaining. This was also
recommended by the 2012 review of the Fair Work Act.

Secret ballots are an essential part of industrial disputes regulations since they reduce
risks of coercion by employers or employee representatives, prevent hollow threats of
disputes that do not actually have employee consent, and provide a clear point at which
the FWC can intervene in circumstances where the parties have not genuinely been
trying to reach an agreements. Nevertheless, they can be overly burdensome, with two
leading legal academics noting that the existing provisions have proved to be a fruitful
source of revenue for the legal profession. Unions have said much the same, and the
Productivity Commission agrees that there might be some scope for simpler and lower
cost arrangements, and is accordingly seeking further feedback on this issue.

Aborted strikes and brief stoppages can involve low costs for employees, but impose
disproportionate transaction costs on employers (and customers). For example, a
one-minute stoppage would legally obligate the employer to suspend pay to employees

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for that duration, despite there being considerable administrative costs in doing so. It is
ironic that the no strike pay measure, which was intended to reduce coercion, can be
used to strengthen the bargaining power of the striking party. Similarly, a business may
be advised of a strike and implement costly measures to address the disruption that it
expects to ensue (for example, rescheduling deliveries or carriage of passengers), and
yet the strike may then be called off. To reduce the use of this strategic ploy, employers
that have engaged in a reasonable contingency response to what ultimately was an
aborted industrial action should be given the capacity to stand down the relevant
employees for the duration of that response. Employers should also be able to pay
employees for short duration strikes or to deduct pay for periods that are more
administratively feasible.

There may be grounds to grant employers more graduated options for retaliatory
industrial action than the nuclear lock-out option. The Productivity Commission is
seeking views on what would be practical and proportional.

The penalties for unlawful industrial action (by any party) should be increased, as this
would allow the FWC and the Federal Court more scope to apply penalties
commensurate with the harm associated with such action.

There are also areas where employers have called for changes to industrial dispute
regulations, but that are not warranted by the evidence.

There should not be any legislative requirement that protected industrial action can
only proceed after a FWC assessment confirms that employees claims are not
excessive, or will not have an adverse impact on the enterprises productivity. A test
of this kind is both asymmetric (favouring employers over employees), but could run
into a definitional quagmire about what was excessive in the context of a particular
enterprises commercial environment. It is inherently undesirable to have an industrial
regulator effectively act as a commercial arbiter between two parties. The
circumstances in which it exercises any such role should be minimised. This is a broad
principle that should inform any future development of the Fair Work Act.

There should be no restriction on industrial action by high-income employees.


Incidentally, were it introduced, it would place Australia in an unusual position among
most other countries, where no such restrictions apply

There is not a strong case for adding further criteria to the test for whether employees
are genuinely trying to reach agreement.

In the debates about regulation of industrial disputes, there is often a mantra that disputes
are harmful to productivity and efficiency, and that there should therefore be more binding
constraints on their use. Disputes may have such effects, although in aggregate there is
little evidence that the effects are material. Many disputes are about who gets what portion
of a cake, not the quantum of the cake. In fact, a missing story is that the toxic
relationships that can surface between employers and employees are sometimes the result
of poor relationship management a key skill for both employers and employee
representatives not a fault of the WR system.
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41

The provisions providing rights of entry by union officials to worksites are broadly sound,
though at times both sides play games with each other. That said, there are grounds for the
FWC to consider more closely the impacts on employers and employees before making
any orders concerning disputes about the frequency of right of entry requests.

Sham contracting

Independent contractors comprise an important share of the workforce (figure 1). This
employment form provides workers with much more autonomy in their working
arrangements, and enables them to change their wage rates to maximise their returns
(including by decreasing the likelihood of unemployment in weaker labour markets).
Employers often choose to use these employment forms because, in some circumstances,
they can improve productivity or lower costs. They can also provide intermittently required
skills and can act as more flexible sources of labour than ongoing employees.
Contractors generally receive different pay and entitlements to ongoing workers. This
generally reflects the degree to which each employment form is regulated by the Fair Work
Act. There is some concern that the differential application of the Fair Work Act creates
incentives to misclassify employees as independent contractors (sham contracting). This
can occur with a workers consent, or through misrepresentation or coercion. It is most
prevalent in the construction, cleaning services, hair and beauty and call centre industries.
Some have argued that the current common law approach to determining whether a worker
is an employee or an independent contractor lacks clarity. The lack of clarity associated
with this approach which balances multiple factors including the length of employment
as well as the choice of work, manner of work, hours of work and payment for work rather
than relying on a single indicator makes it hard to identify the genuine status of
employment arrangements, makes enforcement difficult and leads to inadvertent errors.
While the existing common law definition of a subcontractor may not always be easy to
apply, it is hard to develop a better legislative definition or test.
The requirement that an employer must have been reckless for them to be prosecuted for
misrepresenting the nature of an employment contract appears to be a high hurdle for legal
action. Changing from a test of recklessness to a test or reasonableness would help
discourage sham contracting, including through the regulators out-of-court actions, though
such a change needs to be tested further.

Public sector bargaining

Public sector bargaining differs from bargaining in the private sector in several ways. The
most obvious of these is that there are relatively few employers, but public sector
employees account for a substantial amount around 16 per cent of the total

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workforce. Moreover, in some cases, government is also a legislator and a regulator


effectively making and enforcing the laws it uses to hire workers.
Governments have potential market power because while individual agencies may
negotiate with their employees, the government can set rules for such agreement making,
and close off certain bargaining options by simply tightening the purse strings. In some
instances, governments are also the dominant hirer or funder of people performing certain
jobs (teaching, nursing, emergency services, disability and aged care).
It is hard to test the degree to which governments exercise any such power, or when they
might do so. There is some evidence that pay rises are lower during periods of fiscal
stringency but, on the whole, pay rates catch up during upturns in the business cycle. There
is also evidence that, after having accounted for differences in skills and experience, wage
levels for female employees in the public sector are higher than those of their counterparts
in the private sector. There is scant evidence of a premium or a discount for males. Taken
in concert, this evidence suggests that the wages of public sector employees have not been
systematically depressed. This may be due to several factors, including the high
unionisation rates in parts of the public sector, a desire to attract and retain high quality
employees and cyclical budget pressures. However, what is true for the whole may not be
true for all occupations.
There are also many challenges in bargaining in the public sector that are less evident for
private employers. In most cases, there are no paying customers in the normal sense.
Productivity is not easily measured, though linkages between pay rises and productivity in
enterprise agreements are far more common in public sector than private sector
agreements. The agreements set by agencies often involve what one public service
commissioner referred to as the adoption of interminable or excessively bureaucratic
processes for managing underperformance. There are no easy fixes for these challenges
and probably the best solutions need to be developed at the agency level.

10

Migrant workers in Australia

Although covered under the Fair Work Act, permanent and temporary migrant workers
face higher risks of exploitation. These can be for several reasons, such as limited English
language skills or lack of awareness of their rights in the workplace. A remedy is to
provide additional resources to the Fair Work Ombudsman to strengthen its existing
risk-based approach to monitoring employers. This would allow the Ombudsman to
enhance information sharing with other departments and conduct more investigations and
audits. Recommendations from the Independent Review into the 457 visa program in 2014
such as increasing deterrents for employers could also be expanded to cover all
employment-related visa classes.
In addition to permanent and temporary migrant workers, it is estimated that at least 50 000
migrants are working in breach of the Migration Act 1958 (Cth). As a result, they are not
OVERVIEW
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43

covered under the Fair Work Act. These migrants either do not hold a valid visa to be in
Australia, have overstayed the term of their visa, or are breaching a visa condition by
working. Unlike many other employees, an unlawfully working migrant worker is unlikely
to complain, reducing the most common avenue for discovering exploitation.
As a deterrent, employers can face fines or imprisonment under the Migration Act for
employing these migrants, but depending on how these penalties are applied, an employer
may still benefit from hiring and exploiting a migrant working in breach of their visa
conditions. This is largely due to the fact that an employer currently does not have to pay
the difference between what the worker was actually paid and their minimum entitlements
under the Fair Work Act.
A solution to eliminate an employers benefit from hiring such migrants would be to
impose a two-part penalty on employers: a punishment for breaching the Migration Act
and a fine equal to at least whatever the worker was underpaid over the duration of their
employment.

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Draft recommendations, findings and


information requests

OVERALL DRAFT REPORT FINDING

Despite sometimes significant problems and an assortment of peculiarities, Australias


workplace relations system is not systemically dysfunctional. It needs repair not
replacement.

Chapter 3 Institutions
DRAFT RECOMMENDATION 3.1

The Australian Government should amend the Fair Work Act 2009 (Cth) to establish a
Minimum Standards Division as part of the Fair Work Commission. This Division would
have responsibility for minimum wages and modern awards. All other functions of the
Fair Work Commission should remain in a Tribunal Division.

DRAFT RECOMMENDATION 3.2

The Australian Government should amend s. 629 of the Fair Work Act 2009 (Cth) to
stipulate that new appointments of the President, Vice Presidents, Deputy Presidents
and Commissioners of the Fair Work Commission be for periods of five years, with the
possibility of reappointment at the end of this period, subject to a merit-based
performance review undertaken jointly by an independent expert appointment panel
and (excepting with regard to their own appointment) the President.
Current non-judicial Members should also be subject to a performance review based
on the duration of their current appointment. Existing Members with five or more years
of service would be subject to review within three years from the commencement of
these appointment processes with reviews to be staggered to reduce disruption.
Non-judicial Members with fewer than five years of service would be reviewed at
between three to five years, depending on the date of their appointment.

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DRAFT RECOMMENDATION 3.3

The Australian Government should amend the Fair Work Act 2009 (Cth) to change the
appointment processes for Members of the Fair Work Commission. The amendments
would stipulate that:

an independent expert appointment panel should be established by the Australian


Government and state and territory governments

members of the appointment panel should not have had previous direct roles in
industrial representation or advocacy

the panel should make a shortlist of suitable candidates for Members of the Fair
Work Commission against the criteria in draft recommendation 3.4

the Commonwealth Minister for Employment should select Members of the Fair
Work Commission from the panels shortlist, with appointments then made by the
Governor General.

DRAFT RECOMMENDATION 3.4

The Australian Government should amend the Fair Work Act 2009 (Cth) to establish
separate eligibility criteria for members of the two Divisions of the Fair Work
Commission outlined in draft recommendation 3.1.
Members of the Minimum Standards Division should have well-developed analytical
capabilities and experience in economics, social science, commerce or equivalent
disciplines.
Members of the Tribunal Division Membership should have a broad experience, and
be drawn from a range of professions, including (for example) from ombudsmans
offices, commercial dispute resolution, law, economics and other relevant professions.
A requirement for the Panel and the Minister for Employment respectively is that they
be satisfied that a person recommended for appointment would be widely seen as
having an unbiased and credible framework for reaching conclusions and
determinations in relation to workplace relation matters or other relevant areas.

DRAFT RECOMMENDATION 3.5

The Australian Government should require that the Fair Work Commission publish
more detailed information about conciliation outcomes and processes. In the medium
term, it should also commission an independent performance review of the Fair Work
Commissions conciliation processes, and the outcomes that result from these
processes.

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Chapter 4 National Employment Standards


DRAFT RECOMMENDATION 4.1

The Fair Work Commission should, as a part of the current four yearly review of
modern awards, give effect to s. 115(3) of the Fair Work Act 2009 (Cth) by
incorporating terms that permit an employer and an employee to agree to substitute a
public holiday for an alternative day into all modern awards.

DRAFT RECOMMENDATION 4.2

The Australian Government should amend the National Employment Standards so


that employers are not required to pay for leave or any additional penalty rates for any
newly designated state and territory public holidays.

DRAFT RECOMMENDATION 4.3

Periodically, the Australian, state and territory governments should jointly examine
whether there are any grounds for extending the existing 20 days of paid annual leave
in the National Employment Standards, with a cash out option for any additional leave
where that suits the employer and employee. Such an extension should not be
implemented in the near future, and if ultimately implemented, should be achieved
through a negotiated tradeoff between wage increases and extra paid leave.

INFORMATION REQUEST

The Productivity Commission seeks information on whether it would be practical for


casual workers to be able to exchange part of their loading for additional entitlements
(for example personal or carers leave) if they so wish, and whether such a mechanism
would be worthwhile.

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Chapter 5

Unfair dismissal

INFORMATION REQUEST

The Productivity Commission seeks further views on possible changes to lodgment


fees for unfair dismissal claims.

DRAFT RECOMMENDATION 5.1

The Australian Government should either provide the Fair Work Commission with
greater discretion to consider unfair dismissal applications on the papers, prior to
commencement of conciliation; or alternatively, introduce more merit focused
conciliation processes.

DRAFT RECOMMENDATION 5.2

The Australian Government should change the penalty regime for unfair dismissal
cases so that:

an employee can only receive compensation when they have been dismissed
without reasonable evidence of persistent underperformance or serious
misconduct

procedural errors by an employer should not result in reinstatement or


compensation for a former employee, but can, at the discretion of the Fair Work
Commission, lead to either counselling and education of the employer, or financial
penalties.

DRAFT RECOMMENDATION 5.3

The Australian Government should remove the emphasis on reinstatement as the


primary goal of the unfair dismissal provisions in the Fair Work Act 2009 (Cth).

DRAFT RECOMMENDATION 5.4

Conditional on implementation of the other recommended changes to the unfair


dismissal system within this report, the Australian Government should remove the
(partial) reliance on the Small Business Fair Dismissal Code within the Fair Work Act
2009 (Cth).

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Chapter 6 The General Protections


DRAFT RECOMMENDATION 6.1

The Australian Government should amend the Fair Work Act 2009 (Cth) to formally
align the discovery processes used in general protection cases with those provided in
the Federal Courts Rules and Practice Note 5 CM5.

DRAFT RECOMMENDATION 6.2

The Australian Government should modify s. 341 of the Fair Work Act 2009 (Cth),
which deals with the meaning and application of a workplace right.

Modified provisions should more clearly define how the exercise of a workplace
right applies in instances where the complaint or inquiry is indirectly related to the
persons employment.

The FW Act should also require that complaints are made in good faith; and that
the Fair Work Commission must decide this via a preliminary interview with the
complainant before the action can proceed and prior to the convening of any
conference involving both parties.

DRAFT RECOMMENDATION 6.3

The Australian Government should amend Part 3-1 of the Fair Work Act 2009 (Cth) to
introduce exclusions for complaints that are frivolous and vexatious.

DRAFT RECOMMENDATION 6.4

The Australian Government should introduce a cap on compensation for claims lodged
under Part 3-1 of the Fair Work Act 2009 (Cth).

DRAFT RECOMMENDATION 6.5

The Australian Government should amend Schedule 5.2 of the Fair Work Regulations
2009 (Cth) to require the Fair Work Commission to report more information about
general protections matters. Adequate resourcing should be provided to the Fair Work
Commission to improve its data collection and reporting processes in this area.

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49

Chapter 8 Minimum wages


DRAFT RECOMMENDATION 8.1

In making its annual national wage decision, the Fair Work Commission should
broaden its analytical framework to systematically consider the risks of unexpected
variations in economic circumstances on employment and the living standards of the
low paid.

Chapter 9 Variations in uniform minimum wages


DRAFT RECOMMENDATION 9.1

The Australian Government should amend the Fair Work Act 2009 (Cth) so that the
Fair Work Commission is empowered to make temporary variations in awards in
exceptional circumstances after an annual wage review has been completed.

INFORMATION REQUEST

The Productivity Commission seeks information on whether the structure of junior pay
rates should be based on a model other than age, such as experience or competency,
or some combination of these criteria.

DRAFT RECOMMENDATION 9.2

The Australian Government should commission a comprehensive review into


Australias apprenticeship and traineeship arrangements. The review should include,
but not be limited to, an assessment of:

the role of the current system within the broader set of arrangements for skill
formation

the structure of awards for apprentices and trainees, including junior and adult
training wages and the adoption of competency-based pay progression

the factors that affect the supply and demand for apprenticeships and traineeships,
including the appropriate design and level of government, employer and employee
incentives.

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Chapter 10 Measures to complement minimum wages


INFORMATION REQUEST

The Productivity Commission invites participants further input on the feasibility, merits
and optimum design on an earned income tax credit in Australia, what its introduction
might mean for future minimum wage determinations and employment outcomes, and
in what conditions it would be appropriate to implement such a scheme.

Chapter 12 Repairing awards


DRAFT RECOMMENDATION 12.1

The Australian Government should amend the Fair Work Act 2009 (Cth) to:

remove the requirement for the Fair Work Commission to conduct four yearly
reviews of modern awards

add the requirement that the Minimum Standards Division of the Fair Work
Commission review and vary awards as necessary to meet the Modern Awards
Objective.

To achieve the goal of continuously improving awards capability to meet the Modern
Awards Objective, the legislation should require that the Minimum Standards Division:

use robust analysis to set issues for assessment, prioritised on the basis of likely
high yielding gains

obtain public guidance on reform options.

DRAFT RECOMMENDATION 12.2

The Australian Government should amend the Fair Work Act 2009 (Cth) so that the
Minimum Standards Division of the Fair Work Commission has the same power to
adjust minimum wages in an assessment of modern awards as the minimum wage
panel currently has in annual wage reviews.

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51

Chapter 14 Regulated weekend penalty rates for the hospitality,


entertainment, retail, restaurants and cafe industries
DRAFT RECOMMENDATION 14.1

Sunday penalty rates that are not part of overtime or shift work should be set at
Saturday rates for the hospitality, entertainment, retail, restaurants and cafe industries.
Weekend penalty rates should be set to achieve greater consistency between the
hospitality, entertainment, retail, restaurants and cafe industries, but without the
expectation of a single rate across all of them.
Unless there is a clear rationale for departing from this principle, weekend penalty
rates for casuals in these industries should be set so that they provide neutral
incentives to employ casuals over permanent employees.

DRAFT RECOMMENDATION 14.2

The Fair Work Commission should, as part of its current award review process,
introduce new regulated penalty rates as set out in draft recommendation 14.1 in one
step, but with one years advance notice.

INFORMATION REQUEST

The Productivity Commission seeks views on whether there is scope to include


preferred hours clauses in awards beyond the current narrow arrangements, including
the scope for an arrangement where an employer would be obliged to pay penalty
rates when it requested an employee to work at an employees non-preferred time in
the employment contract.
What would the risks of any such penalty rate agreements be and how could these be
mitigated?

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Chapter 15 Enterprise bargaining


DRAFT RECOMMENDATION 15.1

The Australian Government should amend Division 4 of Part 2-4 of the Fair Work Act
2009 (Cth) to:

allow the Fair Work Commission wider discretion to approve an agreement without
amendment or undertakings as long as it is satisfied that the employees were not
likely to have been placed at a disadvantage because of the unmet requirement.

extend the scope of this discretion to include any unmet requirements or defects
relating to the issuing or content of a notice of employee representational rights.

INFORMATION REQUEST

The Productivity Commission seeks feedback on whether there is a mechanism that


would only restrain pattern bargaining:

where it is imposed through excessive leverage or is likely to be anticompetitive

while allowing it in circumstances where it is conducive to low transaction cost


agreements that parties genuinely consent to.

DRAFT RECOMMENDATION 15.2

The Australian Government should amend s. 203 of the Fair Work Act 2009 (Cth) to
require enterprise flexibility terms to permit individual flexibility arrangements to deal
with all the matters listed in the model flexibility term, along with any additional matters
agreed by the parties. Enterprise agreements should not be able to restrict the terms
of individual flexibility arrangements.

DRAFT RECOMMENDATION 15.3

The Australian Government should amend s. 186(5) of the Fair Work Act 2009 (Cth) to
allow an enterprise agreement to specify a nominal expiry date that:

can be up to five years after the day on which the Fair Work Commission approves
the agreement, or

matches the life of a greenfields project. The resulting enterprise agreement could
exceed five years, but where so, the business would have to satisfy the Fair Work
Commission that the longer period was justified.

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53

DRAFT FINDING 15.1

The case for imposing statutory requirements for employers and employees to discuss
productivity improvements as part of the bargaining process, or for the mandatory
inclusion of productivity clauses in agreements, is not strong. Voluntary agreements
that promote productivity are highly desirable, but such agreements, and the gains
they deliver, should arise from better management, not from a regulated requirement,
which is likely to have perverse effects.

DRAFT RECOMMENDATION 15.4

The Australian Government should amend the Fair Work Act 2009 (Cth) to replace the
better off overall test for approval of enterprise agreements with a new
no-disadvantage test. The test against which a new agreement is judged should be
applied across a like class (or series of classes) of employees for an enterprise
agreement. The Fair Work Commission should provide its members with guidelines on
how the new test should be applied.

INFORMATION REQUEST

What should be the basis for the revised form of the no-disadvantage test, including
whether, and to what extent past forms of the no-disadvantage test provide a suitable
model and would be workable within the current legislative framework?

DRAFT RECOMMENDATION 15.5

The Australian Government should amend the Fair Work Act 2009 (Cth) so that:

a bargaining notice specifies a reasonable period in which nominations to be a


bargaining representative must be submitted

a person could only be a bargaining representative if they represent a registered


trade union with at least one member covered by the proposed agreement, or if
they were able to indicate that at least 5 per cent of the employees to be covered
by the agreement nominated them as a representative.

DRAFT RECOMMENDATION 15.6

The Australian Government should amend the rules around greenfields agreements in
the Fair Work Act 2009 (Cth) so that bargaining representatives for greenfields
agreements are subject to the good faith bargaining requirements.

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DRAFT RECOMMENDATION 15.7

The Australian Government should amend the Fair Work Act 2009 (Cth) so that if an
employer and union have not reached a negotiated outcome for a greenfields
agreement after three months, the employer may (as illustrated in figure 15.5):

continue negotiating with the union

request that the Fair Work Commission undertake last offer arbitration of an
outcome by choosing between the last offers made by the employer and the union

submit the employers proposed greenfields arrangement for approval with a


12 month nominal expiry date.

Regardless of the agreement-making process chosen by the employer, the ensuing


greenfields arrangement must pass the proposed no-disadvantage test.

Figure 15.5 Greenfields agreement-making process

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55

Chapter 16 Individual arrangements


DRAFT RECOMMENDATION 16.1

The Australian Government should amend the Fair Work Act 2009 (Cth) so that the
flexibility term in a modern award or enterprise agreement can permit written notice of
termination of an individual flexibility arrangement by either party to be a maximum of
1 year. The Act should specify that the default termination notice period should be
13 weeks, but in the negotiation of an agreement, employers and employees could
agree to extend this up to the new maximum.

DRAFT RECOMMENDATION 16.2

The Australian Government should amend the Fair Work Act 2009 (Cth) to introduce a
new no-disadvantage test (NDT) to replace the better off overall test for assessment
of individual flexibility arrangements. The guidance in implementing the new NDT
should also extend to collective agreements (as recommended in draft
recommendation 15.4).
To encourage compliance the Fair Work Ombudsman should:

provide more detailed guidance for employees and employers on the


characteristics of an individual flexibility arrangement that satisfies the new NDT,
including template arrangements

examine the feasibility, benefits and costs of upgrading its website to provide a
platform to assist employers and employees to assess whether the terms proposed
in an individual flexibility arrangement satisfy a NDT.

DRAFT RECOMMENDATION 16.3

The Fair Work Ombudsman should develop an information package on individual


flexibility arrangements and distribute it to employers, particularly small businesses,
with the objective of increasing employer and employee awareness of individual
flexibility arrangements. It should also distribute the package to the proposed
Australian Small Business and Family Enterprise Ombudsman, the various state
government offices of small business, major industry associations and employee
representatives.

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Chapter 17 The enterprise contract


INFORMATION REQUEST

The Productivity Commission seeks information on the costs (including compliance


costs) and benefits of an enterprise contract to employers, employees and to
regulatory agencies. Particular areas that the Commission seeks information on are:

additional evidence on the potential gap in contract arrangements between


individual arrangements (broadly defined) and enterprise agreements

the extent to which the enterprise contract would be a suitable addition to the
current suite of employment arrangements, how it could fill the gap identified, and
specific examples of where and how it could be utilised

clauses that could be included in the template arrangement

possible periods of operation and termination

the advantages and disadvantages of the proposed opt in and opt out
arrangements.

In addition, the Productivity Commission invites participants views on the possible


compliance and implementation arrangements suggested in this chapter, such as their
impact on employers, employees and regulatory agencies.

Chapter 19 Industrial disputes and right of entry


DRAFT RECOMMENDATION 19.1

The Australian Government should amend s. 443 of the Fair Work Act 2009 (Cth),
clarifying that the Fair Work Commission should only grant a protected action ballot
order to employees once it is satisfied that enterprise bargaining has commenced,
either by mutual consent or by a Majority Support Determination.

INFORMATION REQUEST

The Productivity Commission seeks further input from stakeholders on how protected
action ballot procedures may be simplified to reduce compliance costs, while retaining
the benefits of secret ballots. Potential simplifications include:

removing the requirement that a protected action ballot specify the types of actions
to be voted on by employees, and instead simply requiring a vote in favour of any
forms of protected industrial action

amending or removing the requirement that industrial action be taken within 30


days of ballot results being declared

granting the Fair Work Commission the discretion to overlook minor procedural
defects when determining if protected industrial action is authorised by a ballot.
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57

INFORMATION REQUEST

The Productivity Commission seeks further input from stakeholders on how significant
harm should be defined when the Fair Work Commission is deciding whether to
exercise its powers under s. 423 and s. 426 of the Fair Work Act 2009 (Cth).

DRAFT RECOMMENDATION 19.2

The Australian Government should amend s. 423(2) of the Fair Work Act 2009 (Cth)
such that the Fair Work Commission may suspend or terminate industrial action where
it is causing, or threatening to cause, significant economic harm to the employer or the
employees who will be covered by the agreement, rather than both parties (as is
currently the case).

INFORMATION REQUEST

The Productivity Commission seeks further input from inquiry participants on whether
s. 424 of the Fair Work Act 2009 (Cth) should be amended to allow industrial action to
proceed where the Fair Work Commission is satisfied that the risk of a threat to life,
personal safety, health or welfare is acceptably low.

DRAFT RECOMMENDATION 19.3

The Australian Government should amend the Fair Work Act 2009 (Cth) so that where
a group of employees have withdrawn notice of industrial action, employers that have
implemented a reasonable contingency plan in response to the notice of industrial
action may stand down the relevant employees, without pay, for the duration of the
employers contingency response.

DRAFT RECOMMENDATION 19.4

The Australian Government should amend the Fair Work Act 2009 (Cth) to grant the
Fair Work Commission the discretion to withhold a protected action ballot order for up
to 90 days, where it is satisfied that the group of employees has previously used
repeated withdrawals of protected action, without the agreement of the employer, as
an industrial tactic.

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DRAFT RECOMMENDATION 19.5

The Australian Government should amend the Fair Work Act 2009 (Cth) so that where
employees engage in brief work stoppages that last less than the shortest time
increment used by their employer for payroll purposes, the employer should be
permitted to choose to either:

deduct the full duration of the increment from employee wages. The maximum
permissible deduction under this provision would be 15 minutes per person, or

pay employees for the brief period of industrial action, if the employer is willingly
doing so to avoid the administrative costs of complying with prohibitions on strike
pay.

INFORMATION REQUEST

While the Productivity Commission sees a prima facie case for allowing employers to
deduct a minimum of 25 per cent of normal wages for the duration of any partial work
ban that impacts on the performance of normal duties, the Commission requests
feedback from stakeholders about the risks that such a change may entail.

INFORMATION REQUEST

The Productivity Commission seeks further feedback from inquiry participants on what
forms of more graduated employer industrial action should be permitted, and how
these should be defined in statute.

DRAFT RECOMMENDATION 19.6

The Australian Government should increase the maximum ceiling of penalties for
unlawful industrial action to a level that allows federal law courts the discretion to
impose penalties that can better reflect the high costs that such actions can inflict on
employers and the community.

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59

DRAFT RECOMMENDATION 19.7

The Australian Government should amend s. 505A of the Fair Work Act 2009 (Cth) for
determining when the Fair Work Commission may make an order to deal with a
dispute about frequency of entry by an employee representative to:

repeal the requirement under s. 505A(4) that the frequency of entry would require
an unreasonable diversion of the occupiers critical resources

require the Fair Work Commission to take into account:

the combined impact on an employers operations of entries onto the premises

the likely benefit to employees of further entries onto the premises

the employee representatives reason(s) for the frequency of entries.

DRAFT RECOMMENDATION 19.8

The Australian Government should amend the Fair Work Act 2009 (Cth) so that unions
that do not have members employed at the workplace and are not covered by (or are
not currently negotiating) an agreement at the workplace, would only have a right of
entry for discussion purposes on up to two occasions every 90 days.

Chapter 20 Alternative forms of employment


DRAFT RECOMMENDATION 20.1

Terms that restrict the engagement of independent contractors, labour hire and casual
workers, or regulate the terms of their engagement, should constitute unlawful terms
under the Fair Work Act 2009 (Cth).

INFORMATION REQUEST

The Productivity Commission seeks feedback on the extent to which unpaid


internships have become more commonplace across the economy, whether any
growth in such arrangements has led to problems rather than opportunities, as well as
the potential remedies to any specific issues.

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Chapter 21 Migrant workers


DRAFT RECOMMENDATION 21.1

The Fair Work Ombudsman should be given additional resources for investigation and
audits of employers suspected of underpaying migrant workers (including those in
breach of the Migration Act 1958 (Cth)).
The Migration Act should be amended so that employers can be fined by at least the
value of any unpaid wages and conditions to migrants working in breach of the
Migration Act, in addition to the existing penalties under the Act.

Chapter 22 Transfer of business


DRAFT RECOMMENDATION 22.1

The Australian Government should amend the Fair Work Act 2009 (Cth) so that an
employees terms and conditions of employment would not transfer to their new
employment when the change was at his or her own instigation.

Chapter 24 Competition policy


INFORMATION REQUEST

The Productivity Commission seeks further input from inquiry participants on whether
the secondary boycott prohibitions in the Competition and Consumer Act 2010 (Cth)
should be amended to:

amend or remove s. 45DD(1) and s. 45DD(2)

grant Fair Work Building and Construction a shared jurisdiction to investigate and
enforce the secondary boycott prohibitions in the building and construction industry.

Chapter 25 Compliance costs


INFORMATION REQUEST

The Productivity Commission seeks data or other information on the extent to which
the workplace relations system imposes unnecessary ongoing costs on unions, and
how these costs are likely to be affected by draft recommendations proposed in this
inquiry.

DRAFT RECOMMENDATIONS
DRAFT REPORT

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